Paper: Workplace injuries and job flows

Author(s) and Affiliation(s):
Frank A Schmid
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The growth rates of workplace injury and illness rates exhibit a negative (time varying) mean and a pro cyclical response to variations in economic activity, as they decline in recessions before rebounding (and overshooting) during economic recoveries. Using a structural time series model, it is shown that this business cycle behaviour is driven by job flows. In recessions, the acceleration of job destruction increases the growth rate of workplace injury and illness incidence rate (which is indicative of moral hazard), while the slowdown in job creation depresses this growth rate by reducing the proportion of workers of short job tenure.


The analysis rests on data from the Bureau of Labor Statistics (BLS, The workplace injury and illness incidence rate - frequency, for short - is defined as number of cases per 100 full time equivalent employees. Frequency is available on an annual basis for manufacturing since 1926, and for all private industry since 1972. Due to the manufacturing series being considerably longer, the analysis focuses on this industry; yet, for key hypotheses, evidence is provided for the private sector as well. The analysis proceeds in two steps. First, a state space time series model is estimated for the (log) growth rate of frequency over the entire time period of available data; this model identifies the (geometric) mean rate of growth and the autoregressive process. Then, in a second step, the model is expanded to a structural (state space) time series specification by introducing de trended (log) growth rates of job flows as covariates; these covariates substitute for the autoregressive process for the time period for which they are available (1993-2007).


The non-fatal workplace injury and illness incidence rates in manufacturing and the private sector have experienced steep declines over their respective recorded histories. By 2007, the incidence rate for the private sector had dropped to 40 per cent of its 1972 value (which is the first value on record). It was shown (for the period 1977-2000) that only 15 per cent of this decline is due to structural change in the economy; the remaining 85 per cent are due to workplaces being safer by design.

There is a “the dog that did not bark” issue to the behaviour the growth rate of the injury and illness incidence rate during recessions. This growth rate does not drop because of the jobs that are destroyed (which lengthens the average job tenure if short tenured workers are over-represented in layoffs) but because of the jobs that are not created.


There is an important difference between jobs created at existing establishments (expansions) and jobs created at openings. Whereas an acceleration of job creation through expansions increases frequency growth, a quickening of job creation through openings has the opposite effect for the private sector and no effect for manufacturing. This finding suggests that workplaces at openings are safer than the average existing workplace, thus pointing to new establishments as an important avenue toward safer workplaces.
The established positive relation between the growth rates of the workplace injury and illness incidence rate and job destruction points to moral hazard, as laid-off workers have an incentive to use the workers’ compensation system as a social safety net. Although the evidence was established for aggregate data only, the finding agrees with evidence of moral hazard in the workers’ compensation system established by Krueger (1988, 1990) at the level of individual claims.


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