Summary of the Contents – March/April 2004

One attribute of a competitive economy is that some firms experience financial difficulties

and a few do not survive. When a company is insolvent or otherwise economically

distressed, bankruptcy law allows the firm an opportunity to attempt a fresh start

by shielding the firm’s remaining assets from collection efforts for its accumulated

debts. Payments of workers’ compensation benefits may be affected for bankrupt employers.

Robert Aurbach provides a comprehensive analysis of self-insuring employers

that file for bankruptcy, and concludes that the practical effects on injured workers can

be devastating. Payments for ongoing medical and rehabilitation services and for cash

benefits can cease. Aurbach proposes an amendment to the Federal Bankruptcy Code

that would help ameliorate the adverse consequences for workers receiving workers’

compensation benefits when their employers enter bankruptcy.

The national average of the employers’ costs of workers’ compensation was 2.25

percent of payroll in 2003. However, as discussed by Blum and Burton, these costs varied

among employers based on the characteristics of the firms and their employees.

Thus, as shown in Figure A, workers’ compensation costs varied from 1.91 percent of

payroll for employers in the Northeast to 3.03 percent of payroll in the West. Similar

differences in costs were found among industries, ranging from 1.85 percent of payroll

in the service-producing sector to 5.75 percent of payroll in mining and construction.

There are also differences among occupations, among establishments of different size,

and between unionized and nonunionized firms.

Information on Workers’ Compensation Policy Review

Workers’ Compensation Policy Review is published six times a year. Requests for a sample copy or for subscription information can be sent by mail to WCPR, 56 Primrose Circle, Princeton, NJ 08540-9416; by FAX to 732-274-0678; or by filling out our online form.