Since 1939, real expenditures on workers' compensation programs have grown at an average annual rate of 4.8 percent per year. The growth has been caused in part by the expansions in the types of workers covered. Another source of growth has been expansions in the coverage of types of injuries and occupational diseases. Although workers' compensation was originally established to insure workers again workplace accidents, the programs in most states were expanded to cover occupation-related diseases.

Starting with California in 1915, states began expanding the coverage of workers' compensation laws to include payments to workers' disabled by occupational diseases. By 1939, 23 states covered at least some occupational diseases. As of July 1953 every state but Mississippi and Wyoming had at least some coverage for occupation diseases. By the 1980s all states had some form of coverage. More recently, some states have begun to expand coverage to include compensation to persons suffering from work-related disabilities associated with psychological stress.

Increased Benefit Levels

Another contributor to the growth in workers' compensation spending has been an increase in benefit levels. The rise in benefits paid out has occurred even though workplace accident rates have declined since the beginning of the century. Workers' compensation costs as a percentage of covered payroll generally stayed around 1 percent until the late 1960s and early 1970s.

Since then, these costs have risen along a strong upward trend to nearly 2.5 percent in 1990. The rise in compensation costs was driven in part by increased payments for benefits and medical coverage, as well as the introduction of the Black Lung program for coal miners in 1969. The rise in benefits can be explained in part by a series of amendments to state laws in the 1970s that sharply increased the weekly maximums that could be paid for benefits.

Expenditures on Medical Care, Disability and Survivors

Over time, and particularly during the 1980s and early 1990s, rising medical expenditures have been a prime contributor to rising costs. Expenditures on medical and hospital benefits have risen from less than 0.2 percent of the payroll to over 0.6 percent in the early 1990s. At that time, employers and insurers began managing their health care costs more closely and slowed the growth of workers' compensation medical costs during the 1990s. Similarly, the disability benefits paid to replace lost earnings have risen sharply over times as reforms of workers' compensation expanded the range of workplace injuries and diseases covered.

Payments of replacement wages to disabled workers have increased relative to the size of payrolls from 0.3 percent of wages and salaries covered by workers' compensation to as high as 0.9 percent around 1990. In contrast, the percentage of the payrolls spent on paying benefits to the survivors of the victims of fatal accidents has stayed relatively constant at below 0.1 percent from the 1940s through 1970 and again from the 1980s to the present.

The upward surge in the percentage of payroll paid out to survivors between 1970 and 1973 was driven by the introduction of the federal Black Lung program. The impact of Black Lung was so dramatic because of the accumulation of a number of years of survivors all being added to the system in the span of three years. Once the Black Lung program stabilized, the survivors' benefits reached a steady state of about 0.1 percent of the payroll, and declined in the 1990s.

Declining Injury and Illness Rates

The general rise in workers' compensation benefits as a share of the payroll should not necessarily be considered a sign that workplaces have become more dangerous. Workers' compensation has increasingly provided benefits for a wide range of injuries and diseases for which compensation would not have been awarded earlier in the century. Data on occupational injury and illness rates for all occupations shows that number of cases of injury and illness per 100 workers in the private sectors has fallen by 32 percent since 1972, while the number of lost workday cases has stayed roughly constant.

Conclusion

Today, workers' compensation is one of the cornerstones of our network of social insurance programs. Although many of the modern social insurance programs were proposed at the state level during the 1910s, workers' compensation was the only program to be widely adopted at the time. Unemployment insurance and old-age pension programs later joined the network through federal legislation in the 1930s. All of these programs have faced new challenges as they have become a central feature of our economic terrain.