Swapping Regulation for Litigation: The Effects of Workers' Compensation Opt-Out on the Injury Claims of Large Multi-State Firms

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The "great compromise" of workers' compensation, whereby workers relinquished the right to sue their employers in exchange for limited no-fault occupational injury insurance, was one of the most significant tort reforms of the 20th Century. Yet because workers' compensation coverage is compulsory and universal in most U.S. states, few scholars have compared its consequences to those of tort liability. Methodologically, the problem is that there is no readily-identifiable "control group" against which to compare the behavior of affected workers and firms. However, one state--Texas--offers a unique laboratory in which to undertake such comparisons. Under Texas law, employers may opt out of workers' compensation and forfeit tort immunity. This phenomenon, called "nonsubscription," has been on the rise since the 1990s among large firms. Interestingly, despite having no legal obligation to do so, most large nonsubscribers furnish their workers with occupational injury plans that substantially replicate the benefits provided through workers' compensation. This study, the first stage of a planned multi-part investigation into Texas nonsubscription, will examine how nonsubscription affects the frequency, cost, and duration of large firms' occupational injury claims. The key methodological challenge that any study of this type must confront is selection bias. Since firms are not randomly assigned across sectors, firm-level disparities between subscribing and nonsubscribing firms may reflect unobservable differences between firms. To minimize the potentially confounding effects of firm-level self-selection, this study has obtained highly granular data from a diverse group of large nonsubscribers that operate homogenous facilities in many U.S. states. To exploit variation across states, the study compares workers in the Texas facilities of each nonsubscriber to employees in its non-Texas facilities. Meanwhile, for those firms that have retained data from the period prior to nonsubscription, the investigator also will compare trends before and after each firm's date of opt-out.