Working Paper: NBER ID: w31978
Authors: Naoki Aizawa; Corina Mommaerts; Stephanie L. Rennane
Abstract: This paper studies the labor market impacts of firm accommodation decisions and assesses implications for the design of social insurance for workplace disability. We leverage a unique workers’ compensation (WC) program in Oregon that provides wage subsidies to firms for accommodating injured workers. Exploiting rich administrative data and a policy change to the wage subsidy, we show that accommodation rates respond to the subsidy rate and that receipt of accommodation leads to a significant increase in employment and earnings a year later. To explore welfare implications, we develop and estimate a frictional labor market model of accommodation as a form of human capital investment. Worker turnover and imperfect experience rating in WC lead to under-accommodation and inefficient labor market outcomes after workplace disability. Counterfactual simulations show that subsidizing accommodation not only improves long-run labor market outcomes of workers experiencing work-related disability but also leads to welfare gains for most workers.
Keywords: firm accommodation; disability; social insurance; labor market outcomes; wage subsidies
JEL Codes: G22; H0; J14; J24; J28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| accommodation (Z31) | employment (J68) |
| accommodation (Z31) | quarterly earnings (G35) |
| eliminating accommodation subsidy (H53) | accommodation rates (Z30) |
| accommodation (Z31) | post-injury employment (J68) |
| accommodation (Z31) | post-injury earnings (J17) |
| subsidy rate (H23) | accommodation rates (Z30) |
| subsidy exposure (H23) | accommodation decisions (R28) |