Secondary: Labor Economics

“Buying time: the insurance value and distortionary effects of Worker’s Compensation” Optimal design of social insurance must balance the welfare gains of providing insurance against the welfare costs of unintended distortions in claimant behavior. While a growing literature estimates the insurance value of Unemployment Insurance, little is known about the value of other social insurance programs. I examine the extent to which the liquidity-enhancing benefits of social insurance outweigh the moral hazard costs in the context of Worker's Compensation (WC). Analyzing administrative data from Oregon, I estimate a discrete proportional hazard model and use variation in the timing and size of a retroactive payment to WC claimants to decompose the elasticity of claim duration with respect to benefits into the elasticity with respect to an increase in liquidity and a decrease in the opportunity cost of missing work. I find the liquidity effect is 1.5 times as large as the moral hazard effect for claimants with pre-injury earnings below the median wage in Oregon. By contrast, I find little evidence of a liquidity effect for claimants with pre-injury earnings above the median wage. Because the retroactive payment occurs near the beginning of the claim, these estimates demonstrate that WC relaxes liquidity constraints even for fairly short absences from work. I conclude that the insurance value of WC exceeds the distortionary cost for lower wage workers, and that increasing the benefi