Association for Public Policy Analysis & Management

While a body of research finds that increasing benefits leads to a longer duration out of work for workers facing temporary health shocks (e.g., Krueger 1990, Meyer et al 1995, Neuhauser & Raphael 2004), little research has investigated the effect of permanent benefits for workers with more severe health shocks. Worker’s Compensation (WC) claimants who receive Permanent Partial Disability (PPD) payments have reached maximum medical improvement and are unlikely to fully recover from their disability. In most states, these claimants receive compensation commensurate with the degree of their permanent disability and receive payment even if they return to work. Using administrative WC claims data matched to earnings records in the state of Oregon, we examine how these unconditional cash transfers affect claimants’ recovery time, and whether more generous payments lead to more successful returns to the labor market, or encourage permanent labor market exit and participation in SSDI. To answer these questions, we exploit a discontinuity in eligibility to receive PPD benefits as a lump-sum, as well as recent policy changes in the calculation of PPD benefits. This research improves our understanding of how partial benefits and unconditional cash transfers (without work disincentives inherent in most programs including SSDI) influence return to work among those with permanent disabilities. At the same time, understanding how the generosity and structure of “first line of defense” programs, such as WC, affect SSDI participation is of paramount importance to forecasting future enrollment and program costs.