Gov.-elect Mark Dayton on Wednesday appointed Ken Peterson to head the Department of Labor and Industry, an agency that oversees workplace safety and workers compensation and grapples with the rising costs of medical care.

Peterson is a veteran of other Democratic administrations and held the top Labor and Industry job 20 years ago under then Gov. Rudy Perpich.

Dayton received strong union support during his campaign for governor, and Peterson's selection was applauded by Minnesota AFL-CIO President Shar Knutson.

"Governor-elect Dayton has picked someone with the experience and compassion for working people necessary to lead this important department," she said in a statement.

The Minnesota Chamber of Commerce also expressed optimism.

"I think we'll be able to work well together," said Chamber lobbyist Tom Hesse.

Peterson said one of the biggest challenges he'll face is dealing with the rising cost of medical care for workers' compensation. He said that in his first stint as Labor and Industry commissioner, 40 cents of every $1 in compensation for injured workers went toward medical costs. Now about 60 cents of every $1 is spent on medical care.

"That's a huge increase," Peterson said in an interview. "One goal of mine is to try to address increased medical costs, try to slow down that increase."

He said he would try to forge an agreement among medical providers, insurance companies and business to rein in costs.

Another goal is to try to speed up resolutions of disputes over workers' compensation.

"If you're waiting for workers' comp and not getting payments, it's pretty important," he said.

Though optimistic about working with Peterson, Hesse said finding common ground between business and labor to curb workers' compensation medical costs can be "tricky. ...We hope the commissioner-designate has some fresh ideas we can look at."

Peterson, who had worked in the attorney general's office under DFLer Mike Hatch, is the third cabinet chief appointed by Dayton. The incoming governor previously announced that he would retain Department of Transportation Commissioner Tom Sorel, and chose David Frederickson to be commissioner of agriculture.

Pat Doyle • 651-222-1210