How Minnesota adopted workers' compensation.

• Author: Kantor, Shawn Everett

The adoption of workers' compensation in the 1910s represents a significant event in the economic, legal, and political history of the United States. Workers' compensation legislation is one of the major tort reforms of this century, shifting liability for workplace accidents from negligence liability to a form of shared strict liability. The legislation marked a radical shift in how employees received compensation for the wage losses and medical expenses arising from industrial accidents. Whereas post-accident benefits were unpredictable and relatively meager under the negligence liability system, compensation for workplace accidents was much more certain and generous under the new regime. Contemporary reformers and subsequent social and labor historians hailed the legislation as the first instance of social insurance in the United States (Ely 1908; Eastman 1910; Conyngton 1917; Lubove 1967; Weinstein 1967; Goldin forthcoming). Further, compensation laws in many states expanded the roles of legislators and administrative agencies, while diminishing the influence of the courts in settling disputes between employers and their workers over workplace accident compensation.

Although most of the social insurance programs that exist today were at least proposed during the Progressive Era, only workers' compensation gained rapid support and adoption across the country. Within a decade forty-two of the forty-eight states had adopted compensation legislation; by 1921 only Arkansas, Florida, Mississippi, Missouri, North Carolina, and South Carolina had yet to enact a law. As Harry Weiss (1966) noted, "No other kind of labor legislation gained such general acceptance in so brief a period in this country" (575). Employers, workers, and insurance companies all anticipated gains from the introduction of workers' compensation. Employers could pass some of the costs of the higher post-accident compensation on to workers through wage offsets (Fishback and Kantor 1995). Moreover, under the new regime employers could predict their accident costs With more precision, and workers' compensation produced less acrimony than the traditional negligence system. Risk-averse workers, despite "buying" the higher benefits, benefited because they faced problems in purchasing their desired amounts of private accident insurance early in the twentieth century. The switch to workers' compensation left them better insured against workplace accident risk, and the laws enabled the insurance industry to expand its coverage of this risk (Kantor and Fishback forthcoming).

Several changes in the workplace accident environment in the early 1900s combined to pique these groups' interest in establishing workers' compensation. Workplace accident risk rose, state legislatures adopted a series of employers' liability laws, and court decisions limited employers' defenses in liability suits, all of which combined to substantially increase liability insurance premiums. By 1910 the worsening workplace accident liability crisis had led many employers to favor workers' compensation. At the same time, increasingly powerful labor unions shifted their focus from reforming the negligence liability system to fully supporting workers' compensation. Our econometric analysis of the legislative decisions to adopt workers' compensation across the United States confirms that the degree of the "liability crisis" in each state was an important determinant of the adoption of workers' compensation (Fishback and Kantor forthcoming).

Although a broad-based coalition of different interests supported workers' compensation, in some states the passage of the legislation required great efforts. The intense political debates over the legislation in the early twentieth century concerned not so much the law's adoption as the specific form it would take. Aspects such as industry coverage, the size of firms to be covered, the level of wage benefits, the maximum allowable benefits, medical and hospital coverage, the waiting period, the means of insuring, and the provisions for conflict resolution evoked contention because they determined how the income generated from the law's adoption would be distributed. As the distribution of political power among the interest groups with a stake in workers' compensation legislation varied across the United States, so did the laws that ultimately emerged from the political process. The U.S. Bureau of Labor Statistics (1917) concluded that "no two laws are alike.... The laws are distinguished more for their dissimilarities than their likenesses" (56).

To illustrate the diversity of the laws, we list in table 1 several key aspects of each state's law. The benefit index is the ratio of the present value of fatal-accident benefits (computed using a 10 percent interest rate) to average annual manufacturing earnings in the first year the law was in effect. The ratio ranged from a low of 1.4 in Georgia to a high of 5.4 in Oregon. Some states compelled firms to join the workers' compensation system, whereas others allowed firms to choose. Firms that opted out of the system forfeited their three common-law defenses under the traditional negligence liability system. Some states required employers to insure through a monopoly state workers' compensation fund, and others offered the option of either a state fund or private insurance, but the majority of states relied exclusively on private insurance carriers. The method of administration also varied. Several states continued to rely on the courts to resolve disputes between workers and employers; most created new bureaucracies to administer the program. The data in the table do not depict, of course, the changing parameters of the laws over time.

Table 1: Characteristics of Workers' Compensation Laws in the United States, 1911-1948 Year Benefit Type of State Enacted Index(h) System California 1911 2.695 Compulsory(g) Illinois 1911 2.346 Compulsory(g) Kansas 1911 2.496 Elective Massachusetts 1911 2.280 Elective New Hampshire 1911 3.000 Elective(b) New Jersey 1911 2.186 Elective Ohio 1911 3.130 Compulsory(g) Washington 1911 3.987 Compulsory Wisconsin 1911 3.333 Elective Maryland(f) 1912 2.441 Compulsory Michigan 1912 2.280 Elective Rhode Island 1912 2.280 Elective Arizona 1913 2.790 Compulsory Connecticut 1913 2.473 Elective Iowa 1913 2.406 Elective Minnesota 1913 2.406 Elective Nebraska 1913 2.674 Elective Nevada 1913 3.097 Elective New York(f) 1913 4.321 Compulsory Oregon 1913 5.364 Elective Texas 1913 3.117 Elective(c) West Virginia 1913 3.659 Elective Louisiana 1914 2.406 Elective Colorado 1915 2.346 Elective Indiana 1915 2.406 Elective(a) Maine 1915 2.280 Elective Montana(f) 1915 2.886 Elective Oklahoma 1915 d Compulsory Pennsylvania 1915 2.406 Elective Vermont 1915 1.732 Elective Wyoming 1915 2.483 Compulsory Kentucky(f) 1916 3.296 Elective Delaware 1917 1.996 Elective Idaho 1917 3.170 Compulsory New Mexico 1917 2.280 Elective South Dakota 1917 2.202 Elective Utah 1917 2.732 Compulsory Virginia 1918 1.982 Elective Alabama 1919 2.050 Elective North Dakota 1919 4.761 Compulsory Tennessee 1919 2.291 Elective Georgia 1920 1.407 Elective Missouri 1925 2.903 Elective North Carolina 1929 3.218 Elective Florida 1935 3.207 Elective South Carolina 1935 2.748 Elective Arkansas 1939 3.524 Compulsory Mississippi 1948 2.538 Compulsory Method of Method of State Insurance(e) Administration California Competitive State(i) Commission Illinois Private Commission(j) Kansas Private Courts Massachusetts Private Commission New Hampshire Private Courts New Jersey Private Commission Ohio State Commission Washington State Commission Wisconsin Private Commission Maryland(f) Competitive State Commission Michigan Competitive State Commission Rhode Island Private Courts Arizona Competitive State Courts Connecticut Private Commission Iowa Private Arbitration Committees Minnesota Private Courts Nebraska Private Commission Nevada State Commission New York(f) Competitive State Commission Oregon State Commission Texas Private Commission West Virginia State Commission Louisiana Private Courts Colorado Competitive State Commission Indiana Private Commission Maine Private Commission Montana(f) Competitive State Commission Oklahoma Private Commission Pennsylvania Competitive State Commission Vermont Private Commission Wyoming State Courts Kentucky(f) Private Commission Delaware Private Commission Idaho Competitive State Commission New Mexico Private Courts South Dakota Private Commission Utah Competitive State Commission Virginia Private Commission Alabama Private Courts North Dakota State Commission Tennessee Private Courts Georgia Private Commission Missouri Private Commission North Carolina Private Commission Florida Private Commission South Carolina Private Commission Arkansas Private Commission Mississippi Private Commission Notes

(a) Compulsory for coal mining only.

(b) Employees have the option to collect compensation or sue for damages after injury.

(c) Compulsory for motor bus industry only.

(d) Oklahoma's law pertained only to nonfatal accidents. Fatal-accident compensation was handled according to the traditional rules of negligence,

(e) Competitive state insurance allowed employers to purchase their workers' compensation insurance from either private insurance companies or the state. A monopoly state fund required employers to purchase their policies through the state's fund. Most states also allowed firms to self-insure if they could meet certain financial solvency tests.

(f) Maryland (1902), New York (1910), Montana (1909), and Kentucky (1914) passed earlier laws that were declared unconstitutional. Maryland also passed a law specific to miners in 19 10. New York passed an elective compensation law and a compulsory compensation law in 1910. The compulsory law was declared unconstitutional but was passed in 1913 after the state constitution was amended.

(g) The initial laws in Ohio, Illinois, and California were...