Some Americans are angered by increasing government intrusion in their lives. Would we be better off if we got rid of “job-killing OSHA?'”
Remembering that suggestion in a comment posted to a news story made me crack a wry grin a few days ago. I was working in a six-foot-deep trench on our farm, laying some new waterline when 10 pounds or so of soil sloughed off the wall of the trench and hit the back of my legs.
What I was doing then, just hours after reading the anti-OSHA Internet rant, illustrated key issues in occupational safety. As a society, we generally don’t want people to be killed or injured while working. Yet many of us are quite willing to take risks when working for ourselves. And employers frequently have little difficulty finding people willing to do dangerous jobs.
Should government “intrude” into such matters of private agreement between employer and employee? And if it does, what results, intended or unintended, will occur?
As an economist I had to acknowledge the basic premise of the Internet poster. When government requires employers to take measures they otherwise would not take to improve workplace safety, it raises their cost of doing business. They may find it profit-maximizing to produce slightly less output and hire slightly fewer people.
Or one can look at OSHA regulations as simply raising the cost of labor. When the cost of an input increases, producers use less of that input. In this case it means hiring fewer people. So the assertion that regulating workplace safety will reduce employment is correct.
The crucial question, however, is just how large that reduction in employment really is. And how much does safety regulation actually increase the cost of goods and services? The answer is that this varies greatly among different sectors, but that the employment reductions and costs increases often are smaller than many people think.
Then there is the overriding question of the value of lives saved and injuries avoided relative to the cost of regulation.
At this point someone invariably interjects that you cannot put a price on human life. In philosophical terms perhaps we cannot. But in practical terms, most people do it every day. I know that my own life is worth more than one dollar. But its value is not infinite. It might be worth $100,000, or perhaps $1 million, to prolong my life a few more years. But I would not choose to give up everything I own to live for another month and leave my wife destitute. Nor am I willing never to exceed 10 miles per hour while driving to minimize the probability of injury in a traffic accident.
In a similar vein, society clearly is better off if a life is saved for every $10,000 spent on workplace safety. And if we spent $10 billion per life saved, we would be worse off, particularly because there are other areas in which we can save lives for a lot less. In this case, we would be better off taking money away from workplace safety and using it where there is a higher payoff.
The fact that most of the social cost of workplace injury is borne by the victim, with few spillovers to others outside of family, leads some economists who are free-market enthusiasts to argue that no government action is needed.
Potential employees can evaluate the risks of a job that is offered and decide if they are willing to take the risk for the wage offered. If the risk is high relative to the wage, they can go elsewhere. Employers will have to offer higher wages to get workers or spend money to reduce risks. Thus, the market functions efficiently for libertarians, Tea Party members who want government out of people’s lives and economists like Milton Friedman.
But most economists reject the assumption that markets are functioning well in such cases. Many, including me, see an “information problem” in that many employees really do not have accurate information about the risks they run. With bad or incomplete information, or with asymmetric bargaining power between employer and employee, a free market does not lead to a social optimum. It may be possible for government action to make things better.
That does not mean that every rule written by OSHA over the past 40 years is optimal or even sensible. It is hard to imagine, for example, that requiring dairy farms to post signs warning employees that manure can make floors slippery generated any net benefit for society, nor did requiring companies to replace existing handrails that were two inches lower than a new standard.
But requiring shoring for trench walls or trench boxes, the moveable shields now omnipresent on excavation sites, has reduced trench cave-in deaths from several hundred a year to a few dozen, most of which occur on sites in violation of OSHA regulations.
The boxes are expensive, but the trade-off in lives saved probably is a good one for society, even if people like me willingly work without them on their own property.
Advocates of getting government out of people’s lives need to think long and hard about just which government functions they want to jettison. And defenders of regulation need to think harder about making regulation more cost effective. Regardless of who wins the next two elections, I think OSHA will be around. And perhaps it will be a more effective agency.
2010 Edward Lotterman
Chanarambie Consulting, Inc.