Incentive Effects of Workers’ Compensation under a Dual System in Korea

This study investigates the incentive effects of workers’ compensation insurance under a dual system in Korea that allows workers injured on the job to also file tort liability claims against employers. The incentive structure of the dual system differs from that of the exclusive system, where workers’ compensation insurance is the only remedy for injured workers. Allowing workers to bring tort actions makes employers bear most of the injury costs associated with fatality and disability. This paper presents the possibility that the dual system may create workers’ disincentives that more than offset firms’ safety incentives. The empirical results support this offsetting behavior hypothesis for fatality and disability cases. Workers’ compensation insurance premiums paid by employers were positively associated with workplace injuries, especially with severe injuries such as disability or fatality.