Injured Workers' Relative Earnings Haven't Rebounded to Pre-Recession Levels

"SB 863 has been a failure. It has resulted in little access to medical treatment, no real substantial increases in permanent disability, especially given the limitations on the weekly rate, and apparently no real impact on the worker's ability to get back to work to earn reasonable earnings.” - Alan Gurvey

Roughly a decade after one of the biggest economic downturns in U.S. history, relative earnings for injured workers in California have increased only modestly and still have not returned to pre-recession levels, according to a new study Rand Corp. released earlier this month. The study, a third in a series commissioned by the Department of Industrial Relations, looked at earnings losses for workers injured in 2016 and 2017 and compared pre- and post-Great Recession data, including relative earnings, which are wages workers would have earned had they not been hurt on the job.

Workers with injuries in 2016 and 2017 were earning about 22% less one year after injury than if they had not been hurt, according to the study. 

Relative earnings one year after injury for those with indemnity claims rose from 77% to 78% among workers who suffered injuries in 2016 and 2017, compared with those who were hurt between 2013 and 2015, according to the study. 

In the second year after injury, relative earnings also rose just one percentage point for the more recently injured workers, to 82%.

Rand said the data shows that “the gap between one-year and two-year outcomes for workers with indemnity claims has widened since the Great Recession.” 

While post-injury employment eventually recovered following the recession, post-injury earnings have remained stagnant overall despite a modest recovery in 2017, according to the study.

In addition, fewer injured workers in recent years have returned to where they worked when injured compared with years prior to the recession, according to the study.

For injuries between 2005 and 2007, the relative at-injury employment rate was 77%, but it dropped to 73% for injuries between 2016 and 2017, according to the study.

Compared with workers who suffered injuries in pre-recession years, the 2016-2017 group of injured workers was more likely to be older and already have lower wages, and was less likely to have cumulative trauma injuries. They also were less likely to collect permanent disability benefits within three years following an injury, according to the study.

Rand compared injured workers with a control group made up of co-workers who resembled the injured group in terms of employment status, prior earnings and tenure, according to the study.

Using the control group, researchers projected what the injured workers would have earned had they not been injured. 

The study analyzes earnings differences and employment data to estimate wage losses for injured workers in the first two years following an injury, Rand said.

Permanent disability benefits also have been disappointing for injured workers despite recently passed reform legislation, according to the study.

According to Rand, those benefits did not rise significantly for workers who sustained injuries through 2014, one year after Senate Bill 863's changes were fully implemented.

Among other aspects, the bill changed how final disability ratings are calculated and increased the maximum weekly wage for permanent partial disability. 

SB 863 eliminated the variable future earnings capacity modifier — which ranged from 1.1 to 1.4 — and gave all workers the maximum by changing it to 1.4. The bill also created what is now known as the Return-to-Work Supplement Program, which makes one-time, $5,000 payments to those who receive the Supplemental Job Displacement Benefit voucher.

While SB 863 was supposed to cut frictional costs to offset a permanent disability benefit increase, frictional costs have remained an issue and workers haven't seen a significant increase in benefits since the bill passed.

Diane Worley, executive director for the California Applicants' Attorneys Association, said the study “confirms what our members’ clients have been experiencing.”

“Increased permanent disability benefits did not materialize as projected post-SB 863, but the cost savings to employers sure did,” Worley said. “Injured workers have had severely reduced access to medical care, a direct result of SB 863, which has saved employers over a billion dollars.”

Lower temporary disability duration and a rise in early settlements could explain why workers haven't seen higher benefits, according to the study.

At 60 months after the date of injury, the average benefit amount for permanent disability rose from $9,556 for injuries between 2005 and 2007 to $10,762 for injuries suffered in 2014, according to the study. 

Overall benefits, including temporary disability, settlements and funds from the Return-to-Work Supplement Program, increased by more than $10,000 for 2014 injuries compared to those suffered between 2005 and 2007, according to the study. But that's largely because of increases in paid settlements and not an increase in benefits, according to the study.

Applicants’ attorney Alan Gurvey, managing partner of Rowen, Gurvey & Win, in Sherman Oaks, said the results so far show SB 863 “has been a failure.”

“It has resulted in little access to medical treatment, no real substantial increases in permanent disability, especially given the limitations on the weekly rate, and apparently no real impact on the worker's ability to get back to work to earn reasonable earnings,” Gurvey said. “It can only be hoped that these studies or other studies will be taken seriously enough to effect change.”

Five-year wage replacement rates also were stagnant when looking at injuries sustained through 2014. 

Excluding medical settlements, the five-year replacement wage was 57% for 2014 injuries, compared with 67.2% for injuries between 2005 and 2007. When medical settlements are included, the rate fell from nearly 72% to 66.6%, according to the study.