Workplace Litigiousness and Labor Market Outcomes: Evidence from a Workers' Compensation Reform

We study a reform to the workers' compensation system in Argentina that, motivated by a large increase in workplace litigiousness, mandates that workers go through a mediating government medical commission after a workplace accident to determine the degree of disability, whether the injury happened in the workplace, and the corresponding compensation before additional legal actions can be taken. Leveraging the staggered implementation of the reform across provinces, we find that the reform substantially reduced workplace lawsuits with no effects on reported accidents. Employment increased in highly exposed industries by more than 5 percent a year after the reform, with no effects on average earnings or the number of active firms.