How job & wage growth is affecting workers' comp
Job growth remains above pre-pandemic averages and wage growth remains strong, but is a recession looming?
The U.S. labor market continues to show strength, with employment increasing an average of 200,000 jobs a month during the second quarter, which is above the average pre-pandemic growth of around 150,000 jobs, according to the latest quarterly economic briefing from the National Council on Compensation Insurance (NCCI).
Additionally, wage growth has cooled but also remains above pre-pandemic levels. Overall average hourly earnings are 4.4% higher than the same period in 2022, according to NCCI, which noted the tight labor market is showing no signs of slackening.
The combination of strong wage and job growth is pushing up premiums in workers’ comp, according to the Insurance Information Institute (Triple-I).
S&P Global reported workers’ comp direct premiums earned were up 4.3% during 2023’s first quarter, while the direct loss ratio dropped 2.3 percentage points.
Recession coming?
If the labor market were to reverse course and loosen, the drivers of payroll growth — an aging workforce and reduced immigration — would persist and payrolls would continue to grow, Triple-I reported.
Although many observers are predicting a coming recession, NCCI reported several key signs are suggestion that a major slowdown is not looming. This includes strong construction employment and spending in residential and nonresidential sectors and manufacturing maintaining a steady pace.
According to NCCI, manufacturing and construction are often the first industries to be affected by falling economic demand. They also have a large impact on workers’ compensation premiums and losses compared to their share of employment.
However, weakening household spending and the winding down of savings accumulated during the pandemic could slow consumer spending. NCCI anticipates this dip in household spending to result in slower economic growth later this year and into the next.
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