Do lump-sum settlements of workers’ compensation benefits discourage return to work? This question is often raised in policy discussions about allowing or restricting settlements of workers’ compensation benefits. Some observers have expressed concern that receipt of a sizable lump sum will delay return to work because workers may feel less immediate need for income. Economists call this an income effect. System practices in some states may reinforce these incentives, as settlement agreements may require workers to leave their at-injury employer and seek a new job.  

Other observers of the workers’ compensation system indicate that the receipt of a lump-sum settlement may encourage return to work. Settlements provide workers with the sense of closure which motivates workers to restart their careers after the workers’ compensation process is over (Hyatt, 2010). This is often referred to as the closure effect. Some workers may be willing to accept lump-sum settlements in order to move on with their lives after an injury (Torrey, 2007a).   

The study follows the experience of 2,138 workers who were injured in Michigan in 2004 and later received a lump-sum settlement.  WCRI followed the employment experience of these workers up through 2008.  Although the study focuses on injured workers in Michigan, policymakers from across the country can learn from these findings and better understand a worker's decision to return to work after a lump-sum settlement. 

Return to Work after a Lump-Sum Settlement. Bogdan Savych. July 2012. WC-12-21.

Copyright: WCRI