The impact of workers' compensation on wage premiums for job hazards

The existence of a trade-off between occupational risk and earnings is well known. Most studies, however, ignore how public insurance systems, like workers' compensation (WC) affect this trade-off. This paper incorporates the workers' compensation system into a hedonic earnings function for paid employees. The results show that workers' compensation lowers the wage-risk trade-off for a sample of Ontario workers. In the absence of workers' compensation, employees would receive a significantly higher risk premium for exposure to the possibility of occupational injuries. This implies that labour markets will provide more than the socially optimal degree of risk if experience rating of workers' compensation is incomplete.