Firm Accommodation After Disability: Labor Market Impacts and Implications for Social Insurance

Naoki Aizawa, Corina Mommaerts and Stephanie Rennane

No 31978, NBER Working Papers from National Bureau of Economic Research, Inc

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 workers with workplace disabilities. Leveraging 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.

JEL-codes: G22 H0 J14 J24 J28 (search for similar items in EconPapers)
Date: 2023-12
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