Categories:
Labor Market
Fun facts from Kip Viscusi‘s article on “Job Safety” in David Henderson’s encyclopedia:
Annual OSHA penalties for safety violations (2002): $149,000,000
Annual Workers Compensation Premiums (2001): $26,000,000,000
Estimated Annual Wage Premiums for Risky Activities (2004 dollars): $245,000,000,000
His point: Market incentives for worker safety dwarf legal incentives, which in turn dwarf regulatory incentives. The level of safety we see in the workplace today is about the same as the level we’d see if government just looked the other way.
READER COMMENTS
mgroves
Feb 5 2008 at 4:31pm
Regulation is less effecient than the market, what a shocking revelation. Now if only people would accept it…
Independent George
Feb 5 2008 at 4:40pm
I don’t disagree with the main point, but regulations, torts, & premiums could be considered complements rather than substitutes.
For example, the regulations themselves might not cause safer work practices, but the lawsuit for violating the regulations could exceed the cost of the regulatory penalties, and, in turn, are factored into the hazard premiums.
Dan Weber
Feb 5 2008 at 4:43pm
Is it really fair to measure the effect of OSHA by the fines it collected?
I might take action to avoid paying a fine.
I think I agree with your larger point, that the market has adapted to assume all the risk. But that might not have happened without safety levels established by OSHA.
Chris
Feb 5 2008 at 5:53pm
I’d be curious to see the costs of complying with OSHA as part of the equation.
It is also interesting to think about how much those premiums are driven by the cost of violating OSHA.
Contrarian
Feb 5 2008 at 8:30pm
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Dr. T
Feb 5 2008 at 8:32pm
OSHA has many stupid and petty regulations that still must be followed, and safety officers waste too much time addressing them and therefore less time addressing significant safety concerns. I believe that, in aggregate, worker safety would improve if OSHA disappeared.
Another factor that affects workplace safety is not insurance premiums themselves but the workplace safety improvements needed to qualify for insurance discounts. When an insurer tells a company CEO that their premiums can be discounted by a million per year by enacting safety changes that cost only half a million a year, the CEO will ensure that the safety changes are made.
Chuck
Feb 6 2008 at 10:06am
Dr. T, how much better could our work safety be than it already is? I don’t know the injury rate, but my impression is that it is pretty low. You could argue that OSHA makes safety more expensive that it has to be, but, for crying out loud, I don’t think you can say that it makes things worse.
And really, there was a time before OSHA. Perhaps I’m the victim of propaganda, but I believe that for many people the work place was extremely dangerous before OSHA.
In general, in regard to the risky job premium, I would contend that in the absence of OSHA there would be a lot of needless risk in the workplace, and workers couldn’t distingish one job from another based on risk – most any job would be risky.
As it is, the only jobs with significant risk left in them are inherently risky – bomb disposal, fireman, policeman, etc. So, the job ‘consumer’ can demand a premium for those jobs since their risk is distinct from other jobs.
On a more fundamental level, in the job market, we don’t start with security and then venture out to find a job and assume more risk only on the condition of more pay. We start with a inelastic need for a job, right now, and if all jobs offered are risky, we take a risky job and don’t have the option to price in the risk. In a world with enforced safety standards, the job seeker is able to discriminate.
dearieme
Feb 6 2008 at 1:51pm
Frequently the worker and the shareholder have a common interest in safety. The problem is the careerist management in between.
Dr. T
Feb 6 2008 at 7:57pm
Chuck disputes my belief that OSHA adds costs without increasing safety. However, he provides no evidence that OSHA helps more than hinders. Having done hospital or laboratory safety inspections prior to OSHA visits, I can assure everyone that most of OSHA’s safety regulations are nonsense that waste time and money to meet. Some of OSHA’s regulations contradict those of other federal expert groups such as the Centers for Disease Control and Prevention. (Who would you trust more about safety requirements for handling nasty bactteria: the CDC [which deals with them daily] or OSHA [a bunch of federal bureaucrats]?)
OSHA was useful decades ago in manufacturing environments where worker safety issues were ignored and employees who were injured or made ill did not file claims for fear of losing their jobs. With our current workers’ compensation system, employees now are happy to report even the most trivial of injuries. Companies with too many claims pay very high premiums, so they have a financial incentive to improve safety. Plus, few employees today are wedded to their workplace, and they will change employers if jobs are too dangerous.
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