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By nearly any measure, organizations are seeing an amalgam of issues in today’s labor market that is putting pressure on not just wages, but also benefits.

The US Chamber of Commerce in March 2023 released some surprising labor market statistics – there are 9.9 million job openings in the US right now, but . While that shortage accelerated rapidly amid the pandemic lockdown and an exodus of Baby Boomer-era workers heading into retirement, there has been a well-documented, slow decrease in the number of available workers in the market since 2010, .

Expect the trend to continue in the near future. Industries ranging from food service to transportation are experiencing significant shortages in qualified workers. Leisure and hospitality alone and the driver shortage in the openings by 2024.

With organizations competing to attract the skills of those workers, wages are increasing. The US Bureau of Labor Statistics (BLS) reports that . Unfortunately, that trend is met with another: an overall increase in benefit costs. BLS data show that benefits during this same 12-month period increased 4.1 percent.

Such news is not new. However, it can be an unexpected twist in any organization’s workers compensation costs. While wage inflation does not necessarily equate to additional workers compensation risks, there are still impacts to an organization’s workers compensation program.

While wage inflation does not necessarily equate to additional workers compensation risks, there are still impacts to an organization’s workers compensation program.

Chiefly, workers compensation programs are rated on payroll, which is inherently sensitive to inflation. The primary impact is seen within the indemnity benefit payout. As inflation climbs and salaries increase, so too does the amount an organization will pay in indemnity benefits.

Typically, the injured employee will receive indemnity compensation equal to two-thirds of the worker’s pre-injury wages. Each state sets a minimum and maximum weekly payout percentage. Those percentages are indexed to respond to wage inflation in most states. As wages increase, so does the indemnity payout.

For example, the increase in wages directly relates to the percentage of compensation an injured worker might receive. A worker with a $5000 weekly wage in 2021 who receives the maximum percentage payout would receive a $3333 indemnity benefit. That same worker in 2023 making $7000 weekly would receive $4666.

Who is Impacted?
While nearly every industry sector is seeing the impact of wage inflation on workers compensation indemnity costs, some industries are experiencing much more movement in wages, thus causing more pressure on the workers compensation program. Those industries with the most significant wage inflation include:

• Leisure and hospitality (15 percent)
• Transportation and warehousing (11 percent)
• Healthcare (9 percent)
• Retail (7 percent) 

Perhaps the prevalence of more temporary staff in these industries is a contributing factor, though it is imperative to note that all industries are being impacted by wage inflation. We have seen evidence to suggest that organizations that offer lower-wage positions are being affected by a greater magnitude than those with higher-wage positions.

The partner approach
Being prepared for higher wages and new workers is also key to building a more sustainable workers compensation program. Work with your insurance carrier or broker to determine both your needs today and your potential needs in the next few years. The right partner can help you translate today’s market pressures and concerns into a better program that protects both your injured workers and your organization’s bottom line.

Need more clarity around how wage inflation is affecting your workers compensation indemnity benefits? AXA XL’s workers compensation experts can help you determine your exposures and can develop a more sustainable program. We can also work with our risk management partners to help you put better mitigation strategies in place that may reduce your risks. When you understand how wages, inflation and organizational changes are tied to your workers compensation program, your organization can put together a program that works now and into the future.


About the author
Based in Chicago, Lexi Bueno is a Primary Casualty Underwriter for AXA XL’s Central Zone. She currently holds her Associate in General 色多多视频 (AINS), Associate in Risk Management (ARM) and Associate in 色多多视频 Data Analytics (AIDA) designations. She can be reached at: lexi.bueno@axaxl.com