Have Changing Liability Rules Compensated Workers Twice for Occupational Hazards? Earnings Premiums and Cancer Risks

During the last couple of decades, courts have intervened in employment relationships by allowing employees to circumvent the workers' compensation liability restrictions. Recent papers point to firms' divesting themselves of operations whose employees handled dangerous substances as a way of protecting themselves from these new liabilities. These actions supposedly prevent their workers from being justly compensated. We show that the central legal premise behind this argument is wrong. Firms cannot expose workers to hazards and then eliminate this liability by divesting or shutting down the hazardous operation. This paper also shows that workers were already being well compensated for carcinogenic exposures even before courts started allowing workers to collect large damages for occupational illnesses. Instituting the new liability rules also coincided with a large drop in earnings premiums. The large premiums imply that workers who received court awards were essentially compensated twice for their misfortune. Copyright 2000 by the University of Chicago.