Notes on the Effect of Wage Changes on Worker's Compensation Premiums and Losses

For many years there have been extended discussions concerning the reflection of the effect of wage changes in the determination of workmen's compensation rate levels. The logic in favor of including such effect is as follows: Workmen's compensation premiums are based on payrolls. When wage rates arc increasing, payrolls are increased and more premiums are collected. Indemnity losses which are based on wages will increase, but not to the same extent as premiums. Therefore, rate levels as otherwise calculated should be reduced in order to avoid excessive premiums. It would follow from the same process of reasoning that a reduction in wage rates would require an increase in rate levels as otherwise determined.