The Effect of No-Fault Workers’ Compensation on Occupational Accident Rates

Abstract

In countries with workers’ compensation schemes, employees receive compensation for injuries at work regardless of fault, while civil law liability of employers is either limited or fully excluded. Compensation schemes provide several instruments to partially restore employers’ accountability for safety, such as experience rating, and to induce employees to take care, such as reduced benefit pay-outs. The degree of liability matters for workplace safety, and different legal arrangements influence incentives of employers and employees to take care. In theory, both no-fault compensation and strict liability insurance can make use of the same instruments to mitigate moral hazard. Risk classes, experience rating and reduced benefits are found in many countries. In addition, the option to self-insure potentially reduces overall accident rates. In practice however, private insurance of strict liability seems to be better suited to adapt insurance levies to risks of individual firms. An empirical analysis of several jurisdictions reveals a consistent pattern. The combination of arrangements that increase civil liability and mitigate moral hazard seems to be important for safety at work. The analysis indicates that no-fault worker’s compensation with the benefit of effective compensation comes with a cost: more injuries of those which it seeks to protect.

Keywords: Law and Economics, Workers' Compensation, No-Fault Schemes, Liability, Risk Classes, Empirical Analysis

JEL Classification: H55, I18, K13, K32