Reforms Could Boost Effectiveness of Occupational Safety and Health Administration

May 2, 2013

The Occupational Safety and Health Act of 1970 created the Occupational Safety and Health Administration (OSHA) to establish and enforce workplace security and health standards. OSHA has helped reduce workplace injuries over the past four decades. Much of the progress, however, is due to the other three pillars of U.S. safety policy system (the U.S. legal system, state workers' compensation insurance programs and the labor market) -- not OSHA, say John Leeth and Nathan Hale of the Mercatus Center.

The U.S. safety policy system, through its four pillars, creates incentives for workplaces to increase safety.

  • Workers' compensation insurance covers workers in the event of an industrial accident and employers are required to pay insurance premiums to the workers' comp funds in exchange for protection from lawsuits.
  • Workers' comp premium costs encourage companies to create a safer work environment and are estimated to reduce workplace fatalities by 22 percent.
  • The legal system further incentivizes the creation of safe workplaces through product liability laws and criminal penalties for OSHA violations.
  • The labor market, which competes for qualified employees, makes safer workplaces more attractive to potential employees.
  • OSHA fulfills its part of the overall system through rulemaking, inspecting firms for violations, levying fines, and consulting with firms looking to improve their workplace safety.

OSHA's inspection efforts have reduced worker injuries by a modest 4 percent. OSHA's system of regulations runs the risk of becoming excessive for some firms, thus reducing compliance and a firm's incentive to improve safety.

  • In 2010, firms that violated OSHA regulations had less than $150 million in penalties.
  • This small sum is compared to the nearly $72 billion cost for workers' compensation insurance and hundreds of billions of dollars in litigation.
  • The financial incentives created by the U.S. legal system, workers' comp and the labor market are much more powerful than OSHA's penalties.

Instead of enforcing its many regulations, OSHA should direct its resources to supplying information to workers about possible hazards, target disadvantaged groups that tend to receive small compensating wage differential and provide more consultation to smaller firms that can least afford workers' compensation insurance.

Source: John Leeth and Nathan Hale, "Evaluating OSHA's Effectiveness and Suggestions for Reform," Mercatus Center, April 23, 2013.

 

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