August 2001

In this paper, we present new estimates of the effect of changes in workers’ compensation benefits on benefit duration and application frequency. Using administrative data for the state of California, we estimate the duration and frequency effects resulting from two increases in temporary disability benefits occurring during the mid 1990s. We employ a quasi-experimental research design that exploits the fact that these increases affected the weekly benefits of highwage earners while not affecting the benefits of low-wage earners. The design also makes use of the fact that benefits are tied to the benefits schedule as of the date of injury. We find consistent increases in the duration of benefit receipt among injured workers whose benefits were affected by the schedule changes. In addition, we find some evidence indicating that the likelihood of filing for benefits conditional on being injured is responsive to the benefits level. Finally, we assess whether the marginal claims that generate the frequency response to the benefits increase involve less sever injuries (as indicate by the duration of benefit receipt) than claims that are not on the margin between applying and not applying for benefits. We find evidence confirming this suspicion and assess the degree to which this non-random selection into the pool of claims receiving benefits biases the duration-elasticity estimates.