Temporary Workers’ Employment and Income Risks After Workplace Injuries

By Christopher Mahon

Should temporary workers be treated separately under workers’ compensation law due to additional employment and income risks they may incur after workplace injuries? A new study examines the many details and variables of this question. The study was conducted by Nicholas Broten of the Pardee RAND Graduate School, Michael Dworsky of the RAND Corporation, and David Powell of the RAND Corporation, and their article describing the study, “Do Temporary Workers Experience Additional Employment and Earnings Risk After Workplace Injuries?” was published by them in the Journal of Public Economics (May 2022).

Although other studies have been written that analyze the injuries of and compensation for temporary workers in the workers’ compensation system (studies which may concentrate on occupational health for temporary workers and rates of workers’ compensation claims, for example), this is the first to examine how employment and earnings risk for temporary employees who file workers’ compensation claims compare to direct-hire employees who also file claims under similar circumstances. The study’s conclusion is that, yes, temporary workers experience significant additional employment and earnings risk after workplace injuries, and that this is an important factor to consider when formulating workers’ compensation policies.

Research Methodology

The study primarily used data from the California Workers’ Compensation System from the years 2005-2012 and included data from over 1.5 million injured workers. Accounting for differences in types of injury and individual occupations, the authors present five tables which present (1) injury count by class-coded occupations, (2) differences in earnings from pre-injury employment through third year of post-injury, (3) differences in employment reductions across three years from time of injury, (4) differences in employment reduction across three years for medical-only injuries, and (5) measurements for incremental uncompensated income loss for temporary workers. They also include an appendix table listing, for the state of California, the occupations that have the highest share of temporary workers; data for this table was drawn from the Bureau of Labor Statistics Occupational Employment Statistics (OES) program.  Using Difference-in-Difference Estimates, Triple-Difference Estimates, and Poisson statistical analysis, the authors are careful to account for variables such as pre-existing differences among temporary and direct-hire workers, pre-tax and after-tax earnings, tax-exempt workers’ compensation benefits, and economic differences resulting from the Great Recession of 2007-2009, but the study finds for all samples the same general pattern for difference in earnings and employment risks for the two sets of workers.

Key Findings

Although it is true that both temporary workers and direct-hire workers are treated equally under workers’ compensation law (for example, cash benefits are determined by the same statutory formulas and medical care is offered with no patient cost-sharing), the economic circumstances of temporary workers after injury are less favorable for temporary workers than for direct-hire workers. Temporary workers incur greater employment and earnings risk after injury than do direct-hire workers under the same circumstances. The risk is greater during the first year after injury and declines by several percentage points during the second and third years, but, even at the third year, the greater risk is large and statistically significant. After injury, the employment propensity of temporary workers decreases by 9.6 percentage points more than for direct-hire workers. The employment propensity gap between temporary workers and direct-hire workers narrows during the second and third years after injury but is still statistically significant. The earnings risk for temporary workers also is greater than for direct hires. Over three years, the loss of earnings for temporary workers is 15.6% greater than for direct-hire workers, although the loss can be affected by other factors, such as indemnity benefits, which reduce the loss to 13.9% when temporary disability benefits are considered and to 12.9% when permanent disability benefits are considered.  

Temporary workers who incurred medical-only injuries were considered in a separate analysis sample since medical-only injuries may be more severe and result in high levels of medical spending, but even accounting for this difference, the general pattern of employment and earnings risk for temporary workers remained the same. Also, statistically, temporary workers do not suffer more severe injuries than direct-hire workers, so the findings indicate earning loss and employment prospects for temporary workers are not a result of more severe injures relative to direct-hires. By state law, both temporary workers and direct-hires are treated equally under the workers’ compensation system; it is not surprising that medical spending for both temporary workers and direct-hire workers is about the same.

The study included many occupational categories. Although the risk was not measured separately for each occupational category, the categories provide insight into how widely temporary workers are used across the labor force and the number of injuries occurring for workers in each category. Total injury count for temporary workers were highest in occupations involving moving, packaging, and assembly in such areas as general merchandise warehouse and low-wage carpentry. Injury counts were lower in printed circuit board assembling, dried and citrus fruit packing, and medical and electrical instrument manufacturing. Temporary worker injuries accounted for anywhere from 25.4% (Warehouses – General Merchandising) to 11.1% (Electrical Apparatus Manufacturing) of the total injury count in each class code.

The actual breakdown for each of the occupation class codes for temporary workers in the study consisted of these categories:

• Warehouses – General Merchandise (25.4% of total injuries).
• Fruit – Dried Fruit Packing (21.5% of total injuries).
• Carpentry (NOC) – Low Wage (15.5% of total injuries).
• Garbage, Ashes or Refuse Dump Operations (11.9% of total injuries).
• Printed Circuit Board Assembling (11.8% of total injuries).
• Stores – Clothing/Dry Goods Wholesale (11.6% of total injuries).
• Fruit – Citrus Fruit Packing (11.4% of total injuries).
• Warehouse – Self Storage (11.3% of total injuries).
• Medical Instrument Manufacturing Electronic (11.3% of total injuries).
• Electrical Apparatus Manufacturing (11.1% of total injuries).

Total injury count for temporary workers varied across occupational class codes and may not directly correlate with the percentages listed above. Still, Warehouse-General temporary workers experienced an injury count of 7,655 in a sample of 30,178 total injuries, and Electrical Apparatus Manufacturing temporary workers experienced an injury count of 416 in a sample of 3,758 total injuries. Looking at the data for both percentages of work force and total injuries for temporary workers provides insight into the climate for workers’ compensation claims across the labor market in addition to providing insight into the wide variety of temporary workers across the labor force.

 Study Limitations

The study does not detail the injury and economic risk for independent contractors and “gig” workers, but the authors believe the conclusion reached for temporary workers can shed significant light on the additional risks for other nonstandard workers such as independent contractors and “gig” workers.

By design, the study focuses on employment and economic risk for temporary workers after injury, but there are other factors (which the authors allude to) which create economic disadvantage for temporary workers. Understanding these factors would provide a greater understanding of temporary workers’ place in the worker compensation’ benefit system. These factors relate to the fact that temporary workers are more likely to have significantly less annual and daily income than their direct-hire counterparts. They have lower weekly wages, shorter tenure at a work place, and may work only part-time. For such reason, labor trajectories are different for temporary workers than for direct-hire workers.

Takeaways

Much of the article was devoted to explaining research methodologies. However, the salient and significant takeaways from the study are these:

• In the first year after injury, compared to direct-hire workers, the employment propensity of temporary workers decreases by 9.6 percentage points more than for direct-hire workers. Propensity decreases by less percentage points over the next two years but the gap between temporary workers and direct-hires is still significant.
• In the three years after injury, earnings risk for temporary workers decreases 15.6% more than for direct-hire workers. The percentage is lower when considering the effect of temporary disability benefits and permanent disability benefits but is still statistically significant.
• Other factors such as annual income and labor trajectories for temporary workers also affect the economic situation of temporary workers and place them in a more difficult economic situation than direct-hire workers.
• The study did not specifically provide data for independent contractors and “gig” workers but notes there could be comparable patterns for these workers, also.
• Temporary workers are employed (and are injured) in a wide variety of occupational categories in many different industries and economic sectors.
• Policy makers for workers’ compensation benefits need to consider the special circumstances of temporary workers as they develop policy. Should a separate category be created for this new and growing segment of the labor force? Should benefits be adjusted according to larger economic and employment risk?

The authors note that workers’ compensation is meant to provide partial insurance against income loss; it is not meant to provide complete insurance against the economic misfortune that may be experienced by injured workers. It is not surprising to them that workers’ compensation does not fully insure against additional employment and income risk for injured temporary workers. Still, as they point out with plentiful evidence, the risk is significant. And the number and role of temporary and nonstandard workers in the labor force continues to change and evolve.

Commentary

Today’s direct-hire may be tomorrow’s “gig” worker. In May of 2023, the Writers Guild of America West went on strike against the motion picture industry, in part, to prevent exactly that. Economic and technological forces continue to impact the labor landscape. As economies, technologies, and worker arrangements continue to evolve, so must the workers’ compensation laws that help to guide and protect them.

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