A study by Price Fishback and Shawn Kantor of the University of Arizona shows th

Question

A study by Price Fishback and Shawn Kantor of the University of Arizona shows that after the passage of workers’ compensation laws, wages received by workers in the coal and lumber industries fell.2 Which of the following could explain why passage of workers’ compensation laws led to a fall in wages in some industries? (A) The passage of the workers’ compensation laws made it more expensive for firms to employ workers, thus reducing the demand for workers. (B) The passage of the workers’ compensation laws allowed employers in hazardous industries to reduce compensating differentials which, in turn, reduce wages. (C) Employers reduced wages to partially offset the cost of having to purchase insurance that would compensate workers for injuries suffered on the job. (D) The supply of labor in these hazardous industries increased following the passage of the workers’ compensation laws because jobs in these industries now pose less risk. (E) None of the above.

Explanation / Answer

Woker's compensation law brough major changes into workplace accident laws whereby employers had to replace upto 2/3rd of the worker's lost earnings for all major accidents that have occured in the workplace. With the increase in liability for the employers in terms of higher post injury benefitspaid to injured workers, the wages in the coal and lumber industries fell. Under the worker's compensation law, a percentage of the worker's weekly wages was fixed for a maximum number of weeks to be paid under social insurance scheme. This law enabled the employers to pass on a substantial portion of their compensation costs onto the workers by reducing their wages.So, the answer is B)The passage of the workers’ compensation laws allowed employers in hazardous industries to reduce compensating differentials which, in turn, reduce wages.

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