Medical Care Spending and Labor Market Outcomes: Evidence from Workers’ Compensation Reforms

Abstract

Medical care represents an important component of workers’ compensation benefits with the potential to improve health and post-injury labor outcomes, but little is known about the relationship between medical care spending and the labor outcomes of injured workers. We exploit the 2003–2004 California workers’ compensation reforms which reduced medical spending disproportionately for workers incurring low back injuries. We link administrative claims data to earnings records for injured workers and their uninjured coworkers. We find that workers with low back injuries experienced a 7.6 percent post-reform decline in medical care, and an 8.1 percent drop in post-injury earnings relative to other injured workers. (JEL I11, I12, I13, J24, J28, J31)