REGULATORY COSTS OUTWEIGH BENEFITS
January 19, 2009
The federal Occupational Safety and Health Administration (OSHA) recently proposed legislation to regulate construction work in confined spaces, such as sewer and ventilation systems, underground vaults and silos.
How much will the new rules cost?
- According to OSHA, the annual cost of complying with the rule will be $77 million in 2002 dollars, and the benefits from improved safety will be $85 million, for a net benefit of $8 million per year.
- However, an examination of the data and assumptions underlying these estimates show they are deeply flawed; estimates based on data updated to 2008 dollars indicate that the compliance costs will be much greater and the benefits much smaller than OSHA claims.
However, a study sponsored by the Associated General Contractors of America (AGC) shows that OSHA understates the cost of complying with the proposed rule, including the recordkeeping requirements, and the numbers of establishments, employees and industries affected. A survey of AGC members conducted for the study indicated that:
- For a typical employer, paperwork will consume 420 hours of employee time and safety training will require 62 hours, for a total cost of 482 hours annually.
- The time cost includes 240 additional hours per year from safety professionals and 104 hours from management employees.
- Given that safety professionals and management employees earn the highest wages in the industry (averaging $42.6/hour and $57.9/hour, respectively), the 482 hours of additional work represents about one fourth of a high-wage employee's annual hours and salary.
- Additionally, in the first year, businesses would incur labor costs to modify existing training materials and to develop new procedures.
With updated information, the compliance costs are much larger and economic benefits much smaller than OSHA's estimates, says N. Mike Helvacian, a senior fellow with the National Center for Policy Analysis:
- The compliance costs would be $364 million in the first year of the rule's implementation and $231 million per year thereafter compared to OSHA's estimate of $77 million.
- The monetary value of the benefits would be $46 million per year in comparison to OSHA's estimated $85 million.
Furthermore, in the future, the monetary benefits of the rule will likely increase at a slower rate than the compliance costs because the projected injury rate reductions will not materialize, says Helvacian.
Source: N. Mike Helvacian, "Regulating Work in Confined Spaces," National Center for Policy Analysis, Brief Analysis No. 639, January 19, 2009.
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