Does Workers' Compensation Encourage Hard to Diagnose Injuries?

Abstract

Worker-generated claims-reporting moral hazard is said to occur when, in order to collect workers' compensation benefits, workers report on-the-job injuries that never occurred or that occurred off the job. Using newly available injury micro data from the Bureau of Labor Statistics on all cases with days away from work, this article assesses the hypothesis that claims-reporting moral hazard is more likely to occur for hard-to-diagnose injuries than for easy-to-diagnose cuts and fractures. Consistent with the hypothesis, multinomial logits indicate that an increase in the wage-replacement rate and a decrease in the benefit-waiting period increase the fraction of carpal tunnel syndrome cases relative to cuts and fractures, while a decrease in the waiting period increases back sprains relative to fractures. Contrary to the hypothesis that claims-reporting moral hazard differentially affects the timing of reported injuries, binomial logit estimates indicate that workers' compensation does not increase the probability of a Monday back sprain relative to a Monday cut or fracture. Rather, an increase in the wage-replacement rate and, possibly, worker choice of doctor increase the probability that an injury of any type is reported on Monday (or the day after a long weekend) relative to other regular workdays.