Sam Keller's TEC Blog

Monday, June 11, 2012

OSHA Inspections: Protecting Employees or Killing Jobs?

OSHA, the federal agency responsible for enforcing workplace safety, has been a center of controversy for many years. The old joke is that OSHA is not a small town in Wisconsin. 

Some new research by Harvard Business School Associate Professor Michael W. Toffel and his colleague David I. Levine suggest that OSHA may in fact have a positive influence on business. They analyzed data from California OSHA after Cal-OSHA decided to conduct randomized inspections of workplaces in addition to normal investigations of accidents and complaints.  Toffel and Levine found some interesting findings. They include:
•    Companies subject to random OSHA inspections showed a 9.4 percent decrease in injury rates compared with firms that were not inspected.
•    There was no evidence of any cost increase to inspected companies for complying with regulations. Rather, the decrease in injuries led to a 26 percent reduction in costs from medical expenses and lost wages along with a commensurate lowering of workman’s comp insurance premiums.
•     The findings strongly indicate that OSHA regulations can actually save businesses money.

I would tend to agree.  A safe workplace is good for business.  The human side is less accidents.  The financial side is less lost time and lower workman's comp premiums.  However, government tactics of fear and intimidation were never something I favored during my career as a business operator.

The authors observed that until now, there has been little solid evidence to support arguments for or against OSHA.  The effectiveness of government regulation on business in general has become a political football this election year. Advocates hold that regulations are necessary to protect public health and safety, while critics see them as arbitrary and costly to business.  The authors chose to take a closer look at the Occupational Safety and Health Administration because they had data from California OSHA that had not been available until now.

OSHA typically inspects those companies most likely to have problems, often following accidents and complaints, thus creating statistics from companies that are worse than average.

At the same time, when problems are resolved, there's no way of telling whether the inspections themselves helped fix them because a company with a bad safety experience in one year usually improves the following year even without an inspection.

Then California OSHA decided to conduct randomized inspections of workplaces, and Toffel and Levine realized they had the perfect real world experiment to settle the debate over workplace inspections.

Their most surprising finding is that inspections worked. Compared with firms that did not get a random inspection, the companies subject to random inspection showed a 9.4 percent decrease in injury rates. Just as important are the findings about the costs to companies of complying with regulations. The researchers found no evidence (within the margin of error) of any additional cost to businesses that had been inspected. In fact, quite the contrary: the decrease in injuries led to a 26 percent reduction in costs from medical expenses and lost wages. And those costs were felt immediately by the reduction of the firm's workman's comp insurance premiums.

In other words, according to Toffel and Levine, those who charge that OSHA regulations cost business money have it completely wrong. In fact, the regulations save money. The magnitude of the results surprised even Toffel and Levine, who expected perhaps a small savings if any. But the strength of the findings, they say, should persuade even skeptical critics.

The authors note, as they should, that a single study cannot settle the debate over all government regulation, or even the debate over OSHA. This study is limited to one regulatory agency in one state; other states and other agencies could show different results. One thing the research does show, though, is the value of randomized inspections as a way to help gauge regulations' effectiveness.

To review the complete article, which was written by Michael Blanding and appeared in the May 21, 2012 issue of Working Knowledge, click here.