Abstract
Studies of moral hazard in employment-limiting social insurance programs such as Unemployment Insurance or Workers Compensation have demonstrated that higher benefits discourage work, emphasizing the price distortion inherent in benefit provision. Utilizing administrative data linking Workers’ Compensation claim records to wage records from an Unemployment Insurance payroll tax database, I explore a different explanation and implement tests for “income effects” that exploit the fact that claimants no longer experience a distorted price of non-employment after an employment-limiting benefit ends. A pair of legislative changes to a Workers’ Compensation benefit rate show little or no evidence of income effects and moderate evidence of income effects, respectively.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
