Bad Economics,
Not Good Ergonomics

By Robert W. Hahn
Copyright 1999 Wall Street Journal
November 24, 1999

The Occupational Safety and Health Administration this week announced its proposed ergonomics standard, aimed at preventing repetitive-stress injuries. If OSHA really is able to prevent such injuries, why doesn't it go into business? It stands to make a bundle if it can simply explain to 1.6 million firms how they could save $5 billion annually and prevent 300,000 workplace injuries a year. If Washington then went to Wall Street to issue an IPO, it could easily raise $50 billion.

Instead, the new regulation is designed to help companies find out more about existing and potential workplace injuries, and then implement preventive measures. Such measures include restricting the activities of workers and modifying the working environment.

This proposed OSHA regulation is bad economics because it ignores a company's strong incentive to make changes around the workplace to reduce worker injuries. These injuries result in lower productivity, lost workdays and increases in worker's compensation and health premiums. According to OSHA, its new regulation will reduce injury rates by 26%, saving $5 billion a year. It's possible that some employers aren't aware of the magnitude of the potential cost savings, or that employees aren't telling their bosses about injuries. But it's hard to believe that companies on their own wouldn't jump at the opportunity to save so much money.

Even if OSHA overplayed its hand just a bit, there still may be a case for taking a serious look at the 1.6 million U.S. workers who experience musculoskeletal disorders, or the 40% of those injuries that are serious enough to require time off work. The question is what to do about this problem.

The answer is that we should attempt to reduce those injuries that are relatively easy to prevent and continue to do research on the ones that are more difficult. Well, miracle of miracles, the market and the government are both doing their part to fix the problem. According to the Bureau of Labor Statistics, the number of musculoskeletal disorders decreased an average of 5% a year between 1995 and 1997. There's no reason to believe that the decline will not continue, given increased awareness of the risk from such injuries. The National Academy of Sciences will be taking a second look at this problem in a study scheduled to be released in 2001.

The OSHA regulation, if finalized, is likely to have three perverse effects. First, it would require firms to go through the motions of reducing the risk from workplace injuries, even if no risk is apparent, stimulating an unnecessary investment of time and resources.

Second, it is likely to give rise to a booming business for ergonomists and lawyers who will advise hundreds of thousands of companies on the government's view of "correct" ergonomic investments and preventative programs.

Third, it would give rise to yet another victim group--the ergonomically challenged--who surely would find it difficult to resist taking advantage of the perks provided by the regulation, such as time off to recover at 90% of pay or "light duty" at full pay. So we can expect considerably more litigation, much like that spurred by the Americans with Disabilities Act, as employers and employees bicker about the types of office chairs and other modifications necessary to eliminate or "materially reduce" workplace hazards.

If OSHA really believes business stands to save billions of dollars from the rule, the simplest fix would be for the agency to focus on providing useful information to the private sector. But this rule points to a more fundamental problem in the government regulatory process. Simply put, federal agencies have a penchant for turning good intentions into bad policy.

One way to provide a reality check is to have the Office of Management and Budget simply return regulatory proposals like this one that don't pass an economic laugh test. A second way is to not let the horse out of the barn--in this case, the ergonomics rule--until the regulatory agency makes a strong case that it is addressing a problem that the market has really failed to resolve.

Robert W. Hahn is director of the American Enterprise Institute-Brookings Joint Center for Regulatory Studies.

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