HEALTH, HYGIENE AND SAFETY

Health, Hygiene and Safety



Health, Hygiene and Safety

Introduction

Highly publicized job accidents, such as mining disasters, create the impression that occupational safety is a haphazard enterprise. Although accidents are random events, occupational safety levels are governed by a variety of social institutions and display systematic patterns across time and across different types of industry. Thus, the probability of occupational injuries and illnesses varies in a quite predictable manner even though the occurrence of particular accidents usually cannot be foreseen. (DiBerardinis 2008, 96)

From the standpoint of economic analysis, firms provide specific safety levels by striking a balance between the costs to the firm of accidents and the costs of providing greater safety. The differences across industries in the costs of providing safety account for the higher risk levels of industries such as mining and construction, where eliminating risks is very costly, as compared to safer industries such as banking. Firms will incur these costs to promote safety if they have a financial incentive to do so. The chief sources of the financial incentives that lead firms to provide a safe workplace are wage premiums that they pay to workers on risky jobs, workers' compensation costs, and government health and safety regulations.

Discussion

The economic analysis of occupational safety dates back to Adam Smith. Workers require higher pay, or compensating differentials, to be attracted to dangerous jobs. This wage premium usually is not in the form of hazard pay but rather is part of the higher overall pay package required to attract workers to risky jobs. In the UK, these wage premiums totalled 129 billion euros in 2000, or about 5 percent of all worker wages. Studies have documented similar but lower wage premiums throughout the world in countries ranging from India and Taiwan to the Ireland.

A useful shorthand puts these wage premiums in perspective: Suppose that the average worker faces an annual occupational fatality risk of 1 in 20,000 and receives about £350 for facing that risk. Put somewhat differently, if there were 20,000 workers facing a comparable risk, there would be one expected death in the group and £7 million paid in wage compensation for risk. Thus, the total wage compensation per expected death is £7 million, which economists often refer to as the value of statistical life (VSL). This £7 million figure is the average VSL estimate based on Irish studies. (Dinardi 2007, 25)

Estimates of the VSL only pertain to the tradeoffs workers make between very small job risks and the wages they require to accept these risks. They do not imply that a worker would be willing to accept certain death for a payment of £7 million, or that a worker would have the resources to pay that amount to avoid the certainty of a job-related death.

Although the incentives that wage premiums for risk provide are often substantial, market forces may not be adequate. Market incentives will fall short if inadequate knowledge of health and safety risks impedes worker ...