The Long-Term Effects of Workplace Injury on Labor Market Outcomes: Evidence from California

Although workplace injury is more common than job displacement, we have limited evidence about the long-term impacts of workplace injury on earnings, employment or labor force exit due to disability or retirement. We link workers' compensation claims data for California workers injured in 2005 to earnings records spanning 2003-2019, providing a long panel for analyzing the long-term effects of workplace injuries. Our difference-in-differences research design compares injured workers who were paid benefits for lost work time (temporary disability) or permanent impairment (permanent disability) to "medical-only" workers with minor injuries. We estimate large reductions in employment and earnings due to workplace injuries. Difference-in-differences estimates controlling for worker characteristics and earnings losses averaged $920 per quarter over 14 years post-injury (or $51,000 without discounting). Event-study estimates show that earnings losses as a percentage of counterfactual earnings do shrink over time (from 19.6% over years 1-4 post-injury to 10.9% over years 10-14 post-injury), yet the presence of a 10.9% earnings reduction more than 10 years after injury suggests that average impacts on labor market outcomes are highly persistent. We also estimate hazard models that examine whether the rate of labor force exit responds to incentives created by Social Security's disability and retirement programs, exploiting age-specific thresholds in program eligibility. We find no evidence of increased labor force exit for injured workers at the Early or Normal Retirement Age, but we do find suggestive evidence that more favorable disability evaluation rules for workers aged 55 and over are associated with increased labor force exit among injured workers.