Firm Accommodation After Workplace Disability

This paper studies the labor market impacts of firm accommodation decisions after workplace disability and assesses implications for the design of firm subsidies. We leverage a workers’ compensation (WC) program in Oregon that provides wage subsidies to firms for accommodating workers with workplace disabilities. Leveraging rich administrative data and a policy change to the wage subsidy, we show that accommodation rates respond to the subsidy rate and that receipt of accommodation leads to a significant increase in employment and earnings a year later. To explore welfare implications, we develop and estimate a frictional labor market model of accommodation as a form of human capital investment. Worker turnover and imperfect experience rating in WC lead to under-accommodation and inefficient labor market outcomes after workplace disability. Counterfactual simulations show that subsidizing accommodation not only improves long-run labor market outcomes of workers experiencing work-related disability but also yields welfare gains for most workers.