Friday, December 27, 2019

Workers’ Compensation Benefits and Overall Wage Growth: Putting Some NCCI Data in Context

Recently, I wrote on this blog about the most recent National Academy of Social Insurance data showing continued declines in employer costs and employee benefits per $100 of employer payroll. As I have written, there are various explanations for this phenomenon. Perhaps it reflects significantly safer workplaces overall. Perhaps there is significant underclaiming of benefits and ongoing legal obstacles to obtaining and retaining benefits. (See here Emily Spieler and John Burton’s article, The Lack of Correspondence Between Work-Related Disability and Receipt of Workers’ Compensation Benefits). The NASI data set does not attempt the expensive and complicated task of capturing information required to answer these granular questions. (In my opinion, the federal government should be gathering the information).

This past November, the NCCI released an issue brief showing that “since 2000, indemnity benefits on a wage-adjusted basis have . . .  kept pace with wage growth across all indemnity injury types in most of the NCCI states.” Assuming this fact to be accurate, is it a counterweight to the NASI graph in my last post that shows a decidedly downward-sloping line for benefits since roughly 1991 (from $1.65 per $100 in payroll in that year to 80 cents per $100 in payroll in 2017)?

One immediate reaction with respect to comparing anything with wage growth since 2000 is – what wage growth? Keeping pace with wage growth may mean keeping pace with real wage declines. As the Pew Research Center reported in 2018, “today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago.”  Moreover, “what wage gains there have been have mostly flowed to the highest-paid tier of workers.” And with respect to recent years, the Economic Policy Institute claims “nominal wage growth since the recovery officially began in mid-2009 has been low and flat. This isn’t surprising—the weak labor market of the last seven years has put enormous downward pressure on wages.”

This highlights at least a couple of problems. First, wage growth since 2000 is an especially difficult metric from which to draw many conclusions about the adequacy of workers’ compensation benefits since the Great Recession lay embedded within the period. But, intuitively, I accept the idea that benefits in the aggregate have “kept pace with” wages in the aggregate during that period. The larger question is whether wage growth keeps pace with inflation. (Keeping pace with breadcrumbs may be all that the workers' compensation system demands). Still, what might be more useful for analytical purposes is to compare the relationship between wage growth and benefits during the 1980s, 1990s, and 2000s. I suspect benefits came crashing down relative to wages in earlier decades, and that we are now working from that already depressed baseline. (John Burton has written about the diminished urgency of fixing workers' compensation subsequent to the disbanding of the 1972 Commission. In a nutshell, benefits initially went up for a short period, and then seemed to deteriorate following the election of Ronald Reagan, which ended any realistic threat of federal intervention into state workers' compensation systems). In other words, more rapid erosion may have occurred in earlier decades and some seem to demand accolades for not slipping further.

The second problem with comparing benefits to wage growth is that most wage growth in recent decades has gone to the top of the socioeconomic ladder. In order to assess the relationship more carefully I would want to know how benefits have kept pace with wages at several different junctures of the wage scale. It may be that workers’ compensation benefits have kept pace with the wages of low-earners but not with those of high-earners. Or it may be that low wage earners have experienced significant real wage declines, and there is a policy question as to how to adjust workers’ compensation benefits in the context of those declines.  

In any event, it is hard for me to conclude that the NCCI issue brief is contrary to NASI figures. Each data set measures different trends, and each shows why multiple metrics are required to gain a clear picture of what is transpiring nationally. It is also evident that workers’ compensation is subordinate to larger economic trends. For example, I have little doubt that the current relative silence in workers’ compensation policy circles has everything to do with waiting to see who is going to prevail in the Medicare for All battle. Hard to have a deeper policy debate on workers’ compensation when the entire paradigm could be set on its head.

Michael C. Duff

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