PRECAUTIONARY SAVING, INSURANCE, AND THE ORIGINS OF WORKERS COMPENSATION

In this article we test whether the introduction of social insurance h as led to a reduction in private insurance purchases and precautionary saving by examining the introduction of workers' compensation. Our em pirical analysis is based on the financial decisions of over 7,000 hou seholds surveyed for the 1917-19 Bureau of Labor Statistics Cost-of-Li ving study. We find that the presence of workers' compensation at leas t partially crowded out private accident insurance and led to a substa ntial reduction in precautionary saving. The introduction of workers' compensation caused private saving to fall by approximately 25 percent , with other factors held constant.