Disability from Injuries at Work: The Effects on Earnings and Employment

This study estimates the earnings losses associated with workplace injuries that lead to permanent partial disability. Using unique administrative data from California, injured workers are matched to their co-workers with similar pre-injury earnings. Earnings loss is estimated as the difference in earnings between these two groups following injury. It is found that earnings losses are large. Moreover, despite the fact that earnings rebound after an initial steep fall, four to five years after injury earnings losses are 25 percent. A large share of the earnings loss is due to lower employment after injury among injured workers. Earnings losses are smaller for workers: with less severe injuries, lower pre-injury earnings, employed in larger firms, and injured when the labor market is robust. Workers suffering from spinal cord injuries and psychiatric disorders experienced particularly large losses. Workers employed in manufacturing industries experience the largest losses; however, the disparities across industries are an artifact of differential severity of injuries and pre-injury earnings. There is some evidence that suggests that benefits are not equitable: some workers receiving different disability ratings and benefits experience the same loss in earnings. Finally, there is no evidence that the 21 percent increase in temporary total disability benefits in California in 1994 affected employment or earnings losses in the long run.