Association for Public Policy Analysis & Management

While economic conditions have been shown to influence workplace injury rates and decisions to apply for Social Security Disability Insurance, little is known about how labor market outcomes for newly disabled workers vary with the strength of the economy at the time of disability onset. Evidence on the relationship between economic conditions and return to work following disabling injury and illness could be valuable for researchers seeking to understand the mechanisms linking poor health to poor labor market outcomes, for policymakers designing interventions to improve the economic well-being of disabled workers.

In this study, we estimate how return to work and earnings losses following permanently disabling workplace injury varied over the Great Recession of 2008-2009 and the subsequent labor market recovery. We linked administrative records on workers' compensation claims to longitudinal earnings histories for all workers in California who filed workers' compensation claims for injuries between 2005-2012 that led to Permanent Partial Disability (PPD) benefits. We measure earnings losses and employment for disabled workers relative to matched control workers from the same firms, thereby controlling for the impact of the recession and recovery on workers who did not file workers' compensation claims. We also distinguish the effects of economic conditions from concurrent changes in the composition of the injured worker population.

We find that earnings losses caused by occupational injury are highly sensitive to the business cycle. Permanently disabled workers injured after the beginning of the Great Recession (2008 or later) experienced much worse post-injury outcomes than workers injured before the recession: earnings relative to control workers in the second year following injury were 8 percentage points lower for workers with injured in 2008 or later than for workers injured between 2005-2007, a 32% increase in earnings losses. These increases in the losses caused by workplace injury were driven almost entirely by reductions in the probability of employment after injury. Although California's labor market had begun to improve by the end our study period, outcomes for injured workers showed little sign of recovery. 

We also found that the recession was associated with dramatic compositional shifts in the population of workers receiving PPD benefits: workers injured during and after the recession were more likely than workers injured before the recession to have characteristics that predict severe earnings losses. These changes in the composition of the PPD population, particularly a shift toward older workers and workers with lower pre-injury earnings, explain between one-third and one half of the worsening in post-injury outcomes associated with the great recession. However, the Great Recession appears to have had a large negative impact on outcomes over and above the impact of compositional changes. Our findings suggest that it may be important to accounting for economic conditions when designing and evaluating policies intended to improve return to work after disability onset.