When workers' compensation was first introduced in the U.S. 100years ago, several types of employment were exempted, includingagricultural workers, domestic servants, many railroad workers ininterstate commerce, and in some states workers in nonhazardousemployments.

More classes of workers were added over time. By 1940,employees earning wages and salaries accounting for 75 percent ofwage and salary disbursements were covered by workers' compensationlaws. At the time Mississippi adopted the system in 1948, thepercentage rose to about 78 percent. Since that time a decline indomestic servitude, railroading, and agricultural employment, aswell as expansions of workers' compensation coverage, have led topayroll coverage of about 92 percent.

Growth in Expenditures on Workers'Compensation

The system has seen other growth as well.

Since 1939, real expenditures on workers' compensation programshave grown at an average annual rate of 4.8 percent per year. Thegrowth has been caused in part by the expansions in the types ofworkers covered. Another source of growth has been expansions inthe coverage of types of injuries and occupational diseases.Although workers' compensation was originally established to insureworkers again workplace accidents, the programs in most states wereexpanded to cover occupation-related diseases.

Starting with California in 1915, states began expanding thecoverage of workers' compensation laws to include payments toworkers' disabled by occupational diseases. By 1939, 23 statescovered at least some occupational diseases. As of July 1953 everystate but Mississippi and Wyoming had at least some coverage foroccupation diseases. By the 1980s all states had some form ofcoverage. More recently, some states have begun to expand coverageto include compensation to persons suffering from work-relateddisabilities associated with psychological stress.

Increased Benefit Levels

Another contributor to the growth in workers' compensationspending has been an increase in benefit levels. The rise inbenefits paid out has occurred even though workplace accident rateshave declined since the beginning of the century. Workers'compensation costs as a percentage of covered payroll generallystayed around 1 percent until the late 1960s and early 1970s.

Since then, these costs have risen along a strong upward trendto nearly 2.5 percent in 1990. The rise in compensation costs wasdriven in part by increased payments for benefits and medicalcoverage, as well as the introduction of the Black Lung program forcoal miners in 1969. The rise in benefits can be explained in partby a series of amendments to state laws in the 1970s that sharplyincreased the weekly maximums that could be paid for benefits.

Expenditures on Medical Care,Disability and Survivors

Over time, and particularly during the 1980s and early 1990s,rising medical expenditures have been a prime contributor to risingcosts. Expenditures on medical and hospital benefits have risenfrom less than 0.2 percent of the payroll to over 0.6 percent inthe early 1990s. At that time, employers and insurers beganmanaging their health care costs more closely and slowed the growthof workers' compensation medical costs during the 1990s. Similarly,the disability benefits paid to replace lost earnings have risensharply over times as reforms of workers' compensation expanded therange of workplace injuries and diseases covered.

Payments of replacement wages to disabled workers have increasedrelative to the size of payrolls from 0.3 percent of wages andsalaries covered by workers' compensation to as high as 0.9 percentaround 1990. In contrast, the percentage of the payrolls spent onpaying benefits to the survivors of the victims of fatal accidentshas stayed relatively constant at below 0.1 percent from the 1940sthrough 1970 and again from the 1980s to the present.

The upward surge in the percentage of payroll paid out tosurvivors between 1970 and 1973 was driven by the introduction ofthe federal Black Lung program. The impact of Black Lung was sodramatic because of the accumulation of a number of years ofsurvivors all being added to the system in the span of three years.Once the Black Lung program stabilized, the survivors' benefitsreached a steady state of about 0.1 percent of the payroll, anddeclined in the 1990s.

Declining Injury and Illness Rates

The general rise in workers' compensation benefits as a share ofthe payroll should not necessarily be considered a sign thatworkplaces have become more dangerous. Workers' compensation hasincreasingly provided benefits for a wide range of injuries anddiseases for which compensation would not have been awarded earlierin the century. Data on occupational injury and illness rates forall occupations shows that number of cases of injury and illnessper 100 workers in the private sectors has fallen by 32 percentsince 1972, while the number of lost workday cases has stayedroughly constant.

Conclusion

Today, workers' compensation is one of the cornerstones of ournetwork of social insurance programs. Although many of the modernsocial insurance programs were proposed at the state level duringthe 1910s, workers' compensation was the only program to be widelyadopted at the time. Unemployment insurance and old-age pensionprograms later joined the network through federal legislation inthe 1930s. All of these programs have faced new challenges as theyhave become a central feature of our economic terrain.