The impact of workers' compensation on wage premiums for job hazards

The existence of a trade-off between occupational risk and earnings is well known. Most studies, however, ignore how public insurance systems, like wo rkers' compensation (WC) affect this trade-off. This paper incorporates the workers' compensation system into a hedonic earnings function for paid emp loyees. The results show that workers' compensation lowers the wage-risk tr ade-off for a sample of Ontario workers. In the absence of workers' compens ation, employees would receive a significantly higher risk premium for expo sure to the possibility of occupational injuries. This implies that labour markets will provide more than the socially optimal degree of risk if exper ience rating of workers' compensation is incomplete.