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16.E: Risks Related to the Job - Workers’ Compensation and Unemployment Compensation(Exercises)
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- The Baylor Crane Construction Company is a Virginia-based
builder with 1,750 full-time and 300 part-time employees. The
company provides all the social insurance benefits required by law
and most other employee benefits plans. Last year, Baylor suffered
high severity of losses when the top five floors of a high rise
collapsed in Virginia Beach during strong winds. Three workers
sustained severe injuries and Johnny Kendel, the 64-year-old
supervisor, was killed. All of the injured workers are back at work
except for Tom Leroy, who is still on disability; his prognosis is
- Compare the benefits provided by workers’ compensation and
- Compare the method of financing of workers’ compensation and
- Describe the benefits of each of the injured and killed
- Is the rationale for workers’ compensation laws the same as
that for no-fault auto insurance plans?
- Loretta works at the ticket counter of a major airline. While
lifting an oversized piece of luggage onto the scale, she strained
her back. Assuming Loretta’s injury was severe enough to
temporarily disable her, what kind of benefits can she expect to
receive through workers’ compensation?
- What are the advantages and disadvantages of mandatory
participation by employers in the workers’ compensation system?
Explain your answer as it affects both employers and
- Lorenzo, a construction worker, was hit by a car while working
alongside a busy highway. His average weekly wage before the
accident was $500. The state he lives in provides workers’
compensation benefits at a replacement ratio of 66.7 percent, with
a maximum benefit of $400 a week.
- If Lorenzo is temporarily and totally disabled for twelve
weeks, how much compensation can he expect to receive?
- What if he is permanently and partially disabled (with a
maximum of 66.7 percent of the total allowed by his state in such
- As risk manager for Titanic Corporation, you want to embark on a
stringent work safety program that would cost the business at least
$500,000 per year for the next three years and $300,000 per year
thereafter. Workers’ compensation losses average about $600,000 per
year, and you estimate that you can reduce them by one-third. Your
plan is opposed by the financial vice president as a “bleeding
heart” program that is not even close to being cost efficient.
- In light of your knowledge of workers’ compensation costs,
employers’ liability exposures, and trends in court decisions, what
arguments can you make in favor of the safety program?
- Give some examples of activities you might include in this
- The frequency of workers’ compensation claims due to stress has
increased. How can the law provide for legitimate stress claims
while reducing illegitimate ones?
- Jeanne quits her job because her boss continually makes advances
directed toward her. She applies for unemployment compensation
benefits while she looks for another job, but her former employer
challenges her benefits on the grounds that her unemployment was
voluntary because she quit her job with his firm.
- What do you think her chances of collecting benefits are?
- Do you think she should be able to collect?
- Could an employer make a workplace so hostile as to force
resignations in order to escape unemployment compensation
- Do you think the experience rating of unemployment compensation
contributions helps stabilize employment? Why or why not?
- Franco Chen, a production foreman for Acme Machine Company, was
discussing an unusual situation with Bill Johnson, a line
supervisor. “Bill, I’ve got a bit of a problem. That new applicant
for the number 7 drill press job seems to be just the person we
need. He has the skill and experience to handle the job. The fact
that he has sight in only one eye doesn’t affect his ability to
perform adequately. Yet I am worried about two things. First, he
said he lost his sight in the bad eye because of a steel shaving
from a drill press ten years ago. That bothers me about this job,
with a possibility of a reoccurrence. Second, I know that
management would be upset if he lost his only good eye because he
would be totally blind and the workers’ compensation settlement
would be much higher for him than for a less experienced worker
with two good eyes. It’s a hard decision for me to make.” Bill
replied, “I don’t know much about the technical aspects of that
problem, but I think I would hire the experienced fellow. In fact,
the Americans with Disabilities Act requires that we not
discriminate against him.”
- What obligation (if any) does the company have toward the new
worker, if he is hired, to make his workplace extra safe?
- How much added workers’ compensation risk will the company be
assuming by hiring the worker with one good eye rather than a
worker with normal vision?