Why Subsidizing Workplace Accommodation After Injury Pays Off for Workers and Firms

Subsidies that encourage employers to accommodate injured workers sharply increase long-term employment and earnings by keeping people connected to work during recovery. When these incentives are weakened, firms accommodate less, hurting workers most likely to benefit and reducing overall economic welfare.

Researchers from the University of Wisconsin–Madison, the National Bureau of Economic Research (NBER), and the RAND Corporation set out to study a moment that quietly reshapes many working lives: what happens after someone is injured on the job. Each year, millions of workers suffer workplace injuries or illnesses. Even when these injuries are temporary, they can result in prolonged periods of unemployment, reduced earnings, and, for some, a permanent exit from the labor market. While workers’ compensation systems are designed to replace lost income and cover medical bills, this new research argues that something equally important often gets overlooked: what employers do, or don’t do, to help injured workers stay connected to their jobs.

The Power of Workplace Accommodation

The study focuses on Oregon’s Employer at Injury Program (EAIP), a policy that provides financial support, primarily in the form of wage subsidies, to firms that offer temporary or modified work to injured employees. Instead of staying home on disability benefits, workers might return to lighter duties, take on different tasks, or receive short-term retraining while they recover. The idea is simple: keep people working if possible, so their skills don’t fade and their link to the labor market stays intact.

Using detailed administrative records covering every disabling workers’ compensation claim in Oregon, linked to workers’ earnings over time, the researchers found that accommodation is far from routine. Only about one in three injured workers receives EAIP-supported accommodation. Large firms and self-insured employers are much more likely to offer modified work than smaller firms, even when workers' injuries look similar. This points to employer incentives, not worker needs, as the main factor behind accommodation decisions.

A Natural Experiment Reveals the Stakes

A policy change in 2013 gave the researchers a rare opportunity to see how firms respond to incentives. That year, Oregon reduced the EAIP wage subsidy from 50 percent to 45 percent. Firms that had relied heavily on the program quickly cut back on accommodation, while firms that rarely used EAIP showed little change. For an average firm, accommodation fell by nearly three percentage points, a large drop relative to typical rates.

The consequences for workers were substantial. Employees who received accommodation were far more likely to be employed one year after their injury and earned much more than similar workers who were not accommodated. In simple terms, accommodation raised the chances of having a job by about one-third and boosted quarterly earnings by more than $4,000. These gains lasted well beyond the recovery period, showing that accommodation can change the long-term trajectory of a worker’s career.

Who Gains the Most, and Who Misses Out

One of the most striking findings is that the workers who stand to benefit the most from accommodation are the least likely to receive it. Workers with more severe or complex injuries often face higher barriers to accommodation, yet they experience the largest improvements in employment and earnings when they do receive it. This mismatch suggests that firms are under-investing in accommodation, especially where it could do the most good.

The study also finds that accommodation helps workers even if they later leave their original employer. Workers who move to new firms after being accommodated still enjoy strong earnings gains. This means accommodation builds general skills and work capacity, not just firm-specific advantages.

Why Policy Matters

To understand why firms underuse accommodation, the researchers developed an economic model that mirrors how workers’ compensation works in practice. Two problems stand out. First, because workers can leave, firms cannot capture all the long-term benefits of accommodation. Second, many firms do not fully pay for the workers’ compensation costs they generate, weakening their incentive to invest in accommodations that reduce future claims.

Policy simulations show what’s at stake. Eliminating accommodation subsidies would slash accommodation rates from about one-third of cases to barely one-tenth, sharply reducing post-injury employment and earnings. More generous subsidies, on the other hand, increase accommodation and improve outcomes for injured workers. Although these subsidies are funded through payroll taxes that slightly reduce wages for everyone, the overall gains are positive. More than 90 percent of workers would be worse off if subsidies disappeared, while low-wage workers benefit the most from stronger support.

A Simple Lesson for Social Insurance

The message of the study is clear and practical. Helping firms help injured workers pays off. Workplace accommodation, supported by well-designed subsidies, keeps people employed, preserves skills, and reduces the long-term economic damage of injury. Rather than focusing only on replacing lost income, workers’ compensation systems can deliver bigger benefits by encouraging employers to keep workers connected to their jobs. In doing so, they turn recovery into a bridge back to stable work, not a detour away from it.