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A Prelude to the Welfare State: The Origins of Workers’ Compensation

Author(s):Fishback, Price
Kantor, Shawn
Reviewer(s):Aldrich, Mark

Published by EH.NET (February 2001)


Price Fishback and Shawn Kantor, A Prelude to the Welfare State: The Origins of Workers’ Compensation. Chicago: University of Chicago Press, 2000. xiii + 316 pp. $37.50 (cloth), ISBN: 0-226-25163-2.

Reviewed for EH.NET by Mark Aldrich, Department of Economics, Smith College.

This gracefully written, meticulously researched book by Price Fishback and Shawn Kantor (both of the University of Arizona) will interest social, political and labor historians as well as those whose primary concern is economic history. That said, readers familiar with the authors’ previously published articles will find little new here. The book’s value, therefore, is less in its novel findings than because it synthesizes the authors’ previous research into a compelling analysis of the origins and consequences of workmen’s compensation.

The authors begin their story with an introduction and first chapter that provide context, a framework, and an outline. They conclude that workers’ compensation was an institutional innovation that benefited all major interest groups — employers, employees, and insurers. The evidence for this claim as well as how and why compensation was enacted are the topics of the next seven chapters. Eleven quantitative appendices comprising another 105 pages then follow. By treating the more technical materials in this fashion they make the book potentially assignable in undergraduate as well as more advanced courses.

This is history filtered through the lens of neoclassical economics. One of the book’s strengths is the powerful theoretical focus the authors bring to the subject. Yet they also nearly always show a commendable sensitivity to historical context. Chapter two on compensation before Workers’ Compensation is the best treatment of the actual working of the employers’ liability system that I have seen. The authors point out that since so many cases were settled out of court the system may have operated quite differently than the law and economics literature postulates. Their findings on compensation for fatalities largely confirm the conclusions of early critics. The system worked like a lottery: a few hit the jackpot but most received very little. For injuries, however, matters were more complex and compensation reflected not only the workings of the common law but also such labor market considerations as worker experience. Indeed, they may understate these non-legal forces. Nineteenth-century railroads, for example, routinely re-employed even workers with permanent disabilities. Some also paid wages to those temporarily disabled which they did not treat as compensation.

In chapter three the authors discuss the economic impact of the switch to workers’ compensation. The shift really did raise accident compensation and it changed other aspects of the labor market as well. They argue that workers had responded to the old liability system by buying insurance and increasing precautionary saving. Econometric analysis suggests that under compensation they reduced saving. Similarly, their statistics show that compensation reduced the wages of non-union workers in coal and lumber.

Relying on their own earlier statistical research and that of others as well, the authors argue that compensation increased fatal accident rates in soft coal mining, for it induced miners to take long chances, while the Federal Employers’ Liability Law reduced railroad fatalities. The difference, we are told, was that compensation in coal yielded moral hazard problems that the companies ignored due to high monitoring costs while supervision on railroads was cheaper.

I am not entirely convinced. Unlike other aspects of their work, here neither the authors nor their sources buttress econometric findings with robust non-quantitative support. Monitoring costs must also have been high in metal mining, yet here fatalities declined. And there are at least two other possible causes for the rise in coal fatalities. First, it may have resulted because some mining states held compensation costs artificially low for mining while for many small coal mines the lack of complete experience rating under compensation actually reduced the marginal cost of accidents. Second, mining conditions changed, and it is not clear whether these have been adequately controlled in the econometrics. Contemporaries claimed that World War I brought a burst of bad mining practices that ballooned roof falls in the 1920s, while mechanized mining (not just the use of coal cutting machines) also raised risks during these years.

While I agree that the evidence that railroads reduced accidents in response to employers’ liability laws is compelling, I am skeptical that their success resulted mostly from lower monitoring costs. Trainmen were notoriously hard to monitor; yet their fatality rates fell sharply from about 1907 on. This resulted in part from improved monitoring (the carriers instituted surprise checking to see if trainmen followed rules) and in part from investments in signaling that yielded both safety and efficiency gains.

Chapters four through seven deal with the political economy of workers’ compensation laws — the forces that shaped their timing, use of state or private insurance, and benefit levels. Here the writers integrate econometric analysis with case studies that employ more traditional historical analysis based on secondary sources and the authors’ own primary research. They contrast explanations that stress interest groups with those focusing on broader political coalitions and find that both were important. Yet compensation alone succeeded during these years, while proposals for unemployment and health insurance died — probably, the authors argue, because only compensation was favored by all major interest groups.

In a book that represents as much research as this does it is possible to pick an almost infinite number of nits. I will simply note two. First the authors sometimes write as if historical actors were aware of modern regression coefficients. Thus we are told (pp. 177-178) that employers’ views on benefits were influenced by their ability to shift compensation costs to non-union workers in the form of lower wages. Later (p. 187) the authors assert that unionized workers had strong incentives to push for legislation because they were relatively successful in preventing wage offsets. But how could either group have known the future magnitude of the offsets? Second, in Appendix B and chapter 7 the authors calculate the present value of compensation benefits by state and year from 1910 to 1930 based on accident distributions in Oregon in 1915-1917. This is a tiny and probably unrepresentative sample and why the authors ignored BLS data from the mid-1920s on is unclear. Whether any of this makes any difference is also unclear, but one would feel more comfortable had it been addressed.

Despite such quibbles this is an interesting, valuable book. It will surely be the definitive study of workers’ compensation and it is a model of political economy research.

Mark Aldrich is Marilyn Carlson Nelson Professor of Economics at Smith College, Northampton, MA. His most recent research, “Train Wrecks to Typhoid Fever: Railroad Medical Organizations, 1850-World War I,” is forthcoming in the Bulletin of the History of Medicine.

Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII