researching and writing about Boeing's 737 Max airliners

In addition to reading the slides, read the notes under each slide. These are my “virtual voice”.

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Economics impacts us all. Some ways are obvious such as unemployment

rates, wages and benefits, housing values, the value of savings or pensions –

even the cost of tuition. But does money make a difference in whether you will

come home from work safe and sound? This week we will examine how

economic considerations shape health and safety conditions and the economic

forces that impact occupational safety and health. But first let’s take a quick

look at some economic theory (don’t fall asleep or freak out – this will be

relatively painless and quick).

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As you learned in Week 3, risk is the likelihood that something bad will

happen (such as illness, injury, or death) because of a hazard (such as an

exposure to a toxic chemical, a fall, or amputation).

Let’s look at how risk is viewed differently by two economic doctrines (or

beliefs or principles)

Free market economics: This economic theory is based on the idea that the

economy functions best when markets operate freely with the least

interference from government regulation and union contracts. Market power is

the ruling factor.

Institutional economics: This economic theory is based on the idea that

unregulated markets do not always produce the best outcomes for everyone.

Institutional economics emphasizes the role of social organizations (such as

unions and employer associations) in making sure the economy produces

positive results for everyone.

Which doctrine are you inclined toward?

The definitions and explanations below may help in understanding the concepts presented in the slide.

What is deductive and inductive reasoning?

Deductive reasoning is the process of reasoning from known facts to conclusions. When you reason deductively, you can say “therefore” with certainty. If your facts were firm to begin with, then your conclusions will also be firm, but if your facts were flawed your conclusion will be too. Inductive reasoning is the process of going from observations to conclusions. This type of conclusion is sometimes called an inference. Successful inductive reasoning depends on the quality of your observations, or evidence. (Jessica Pegis)

What is empirical evidence?

Provable or verifiable data derived from observation or experience.

Qualitative and Qualitative approach to research explained:

Qualitative approach: Concerned with accurately describing and defining the qualities of the object of research. In the social sciences emphasizes people’s subjective view of events and actions.

Quantitative approach: Seeks to explain the causes of change primarily through measuring the quantitative aspects of events and actions using statistical methods.

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Why are there more slides on free market economics in this

presentation?

Free market doctrine is the dominant approach to economics in the U.S. This

is not to suggest that the approach is the most effective way to ensure safe

and healthy work. This week you will be formulating your own opinion about

free market and institutional economic approaches to occupational safety and

health.

Next, lets’ take a closer look at compensating wage differentials.

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In the form of an equation, compensating wage differential would look like this.

Ok, (you may be wondering) how does this impact work health and safety?

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What is a cost-benefit analysis?

Weighing the total expected costs against the total expected benefits of one or

more actions in order to choose the best or most profitable option. The formal

process is often referred to as either CBA (Cost-Benefit Analysis) or BCA

(Benefit-Cost Analysis). The process is not without its critics, but is widely

used by business, industry, and government.

Market investors are interested in a company’s safety performance when

those problems threaten profitability.

The next two slides illustrate the argument.

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This employer is using cost-benefit analysis to decide whether to pay a

premium for a worker to do risky work or whether to pay to make the work

safer (make an investment in safety.) The next slide shows the employee’s role

in this process.

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The assumption is that a worker will do his or her own cost-benefit analysis

and if the compensating wage differential (the money) is accepted, they have

made a rational choice to accept the risk of a dangerous job.

Critics of compensating wage differential theory suggest that workers in the

riskiest jobs do not receive sufficient compensation to offset taking on more

risk.* Leigh raises an number of problems with the theory, especially the

troubling statistic that only 5% of workers are fully informed about the hazards

of their occupations.** Lack of information is especially serious for newly hired

workers in dangerous jobs. Many of them will discover the hazards while

working the job and decide to quit, but others may find out too late. The

assumption of rational choice requires that the person have full information

about the consequences of alternative choices.

Try to apply the compensating wage differential theory to employees of

W.R.Grace in Libby, Montana, workers at Pop em’ Up and McWane. Do you

think the theory works?

* Leigh, J.P. 1991. No Evidence of Compensating Wages for Occupational Fatalities. Journal of Industrial

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Relations.

** Schilling and Brackbill. 1987. Occupational Health and Safety Rules and Potential Health Consequences by U.S.

Workers. Public Health Reports.

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But does the market produce the right amount of safety? Do people behave in

a rational way? Are people able to behave rationally given the constraints of

the labor market (availability of jobs, unemployment, etc.)? What do you think?

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I added this slide because often students think that because I’m presenting free market economic theory that it is an endorsement of it. And sometimes students accept the theory as a kind of hard and fast law. On the contrary! I hope that you will think like a journalist and pick the theory apart. You may embrace it or reject it or find parts of it valid and other parts not so much. Free market theory is just that – a best guess and it is not universally accepted by economists and experts in related fields (some would argue that it doesn’t reach the bar of being a theory but is more of a hypothesis). If we were in a face-to-face class this is the class would have an informal discussion about free market economics and how it affects worker health and safety, economic inequality and quality of life in general. In our online classroom, I’m giving you my thoughts in this presentation and you will be discussing the topic with your in a discussion later in the semester.

Below is an excerpt from a report written by Frank Ackerman for the non-profit Friends of the Earth (England, North Wales & Ireland). Ackerman is an economist known for his work in environmental economics, particularly in the areas of climate change and development. A prominent critic of conventional economic approaches to climate and their use of cost–benefit analysis, he has written extensively for academic and the popular press and directed numerous studies for government

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agencies and nongovernmental organizations. Although the focus of the report is on environmental concerns, it also includes human health concerns. It is not possible to separate human health from the environment, just as the health of workers is inextricably linked to the communities in which the work is done.

“Once upon a time, protection of human health and the natural environment did not seem to require economic analysis. Before the 1980s, public health and environmental policies were debated primarily on scientific, ethical, and legal grounds, with less emphasis on costs – let alone monetized benefits. More recently, it has become the norm to assume the need for cost-benefit analysis of new policies, comparing monetary costs and estimates of the monetary value of benefits. Just as a business should only make an investment if the expected revenues exceed the costs, the new approach suggests that government should only adopt a new initiative if its expected benefits exceed its costs.

Although the theory can be traced back to the nineteenth century, the first applications of formal cost-benefit analysis by government occurred in water projects in the US in 1936, and in evaluation of road and rail transport options in the UK around 1960. By the 1980s, the academic development of environmental economics coincided with the heightened interest in eliminating waste and promoting “efficiency” in government under the Thatcher and Reagan administrations – leading to a much-expanded role for formal cost-benefit calculations both in the UK and the US.

Today it is often taken for granted that cost-benefit analysis is needed to ensure “better regulation” and avoid inefficiency in government.

The argument of [Ackerman’s] report is that cost-benefit analysis is a flawed procedure, which should not be central to public policy decisions on climate change or other issues. In practice, cost-benefit analysis exhibits numerous problems, ranging from deep ethical and logical contradictions to a persistent tendency toward forecasting errors and partisan abuse. Some of these flaws could in theory be corrected; others are inherent in the methodology, and underscore the need for alternatives. Other, equally logical approaches to decision-making are available; these alternative approaches have the added advantage of acknowledging the multidimensional complexity of environmental issues and the inescapable role of uncertainty. [Numerous] case studies of policies illustrate the weakness of cost-benefit analysis and the need for alternatives.”

From a labor and public health perspective, CBA’s have assumptions built into them that are flawed. Flawed in what way?

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First of all, how do you price (or monetize) the priceless? What is the price of a human life? Well, putting a dollar value on life is done all the time as you will read about in the next slide. (You will have to decide for yourself if it is valid or ethical to consider a life a commodity) But how do you price other intangibles? For instance, what is the price of an uncontaminated water source for a city? Or the price of exposing workers to carcinogens? What is an endangered species worth? How about public open space that the community uses for recreation? These are things that are harder to monetize and are often left out of the CBA equation. In other words, how do you price the priceless? Your house or your car is a commodity with some price attached to it that has meaning. Your life (or someone else’s) or the lives of your family members or having safe air to breath and water to drink are not commodities and it can be misleading to say that they are for sale at any price. What do you think?

Another flaw in the theory of CBAs is that things that can be measured in money can be traded off. Trading one thing for another is the basis of CBA theory. Well, if you don’t accept that human life is a commodity or that a healthy environment, say unpolluted drinking water, can be traded off then this becomes a sticking point of CBA theory. Another problem with tradeoffs is how do you measure the future? If there is a risk that a new chemical will cause disease twenty years from now, how do you measure the cost of something that won’t happen for a very long time? In the Week 4 discussion about asbestos and diacetyl, a number of you asked why substances that are known to cause harm are still used. Using CBA methods within the assumptions of free market theory, if the benefits (the profit from the asbestos product or microwave popcorn) is greater than the cost (workers’ compensation, some law suits, and maybe an OSHA fine) – why not?

CBAs happen to be a current popular economic theory in the US, but there are other ways of making decisions about costs and benefits. One approach is to think in terms of prevention and minimizing risk when making business and policy decisions; to take precautions to avoid unwanted consequences. The assumption is that there are some consequences that are so negative and costly to society that it just isn’t worth taking the risk. There are U.S. companies and corporations that make decisions this way and it is an accepted way of making decisions in many EU countries. The premise is that sometimes the worst case scenario of what could happen outweighs the benefits (profit) that a business concern would reap. In other words, the cost to society in terms of health, safety, life, or the environment is taken into account and these intangibles are not considered up for sale. This approach to decision making is referred to as the “precautionary principle” in Europe. This week you will be viewing a TEDTalk that explains this approach in more depth (access this video on the Week 6 page). One argument against this way of decision making is that nothing is without risk. True. But then I would pose the question - what do we value and what kind of society do we want to live in? (Exam tip: there is at least one question on the exam

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from the TEDTalk video)

Building nuclear power reactors in Fukushima, Japan on an earthquake fault line was high risk decision. British Petroleum (BP) taking safety shortcuts on the Deepwater Horizon oil rig was a high risk decision. W.R. Grace’s failing to implement safety measures to protect employees or to tell them of the dangers of asbestos in Libby was a high risk decision. In all of these cases high risk decisions came at a huge cost to the companies in terms of money, criminal convictions, and loss of reputation and public trust. The costs to the people and the environment affected were immeasurable. But often trading safety for profit pays off for companies and the profits outweigh the costs. But just because it can be done should it be done? How would you feel if your health (or that of a family member) was be part of a CBA calculation?

One other point - often when a risky decision is based on costs v. benefits, the costs are paid by those in our society who have the least. Those who have the least are the poor, immigrants, the old, the disabled, or people who may have once been firmly in the middle class but who are now unemployed or underemployed. For instance, chemical plants that release dangerous toxins into the air are rarely constructed in upper class or even middle class neighborhoods – they will be in poor neighborhoods. The people who take the most unhealthful, unsafe and lowest paying jobs are the people who have the fewest options. (In the family OSH history papers, many of you wrote about how your grandparents or parents had no choice but to risk illness or injury in order to provide for their families.) It is highly unlikely that the interests of poor, disenfranchised communities will be calculated into a CBA, or that those communities will even know when such a process is taking place.

Now, let’s get back to free market economic theory.

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If you are wondering how much your own life is worth but aren’t sure you can

do the calculation there are experts (called actuaries) who can do it for you!

How workers’ lives are valued and how workplace fatalities are defined by

decision makers are seen as a barrier to safer workplaces by David Rosner in

his article, When Does a Worker’s Death Become a Murder? and Levinstein

and Dunn’s article, Show Me the Money: Cost Benefit Analysis in the Work

Environment (these articles are assigned reading).

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The two assumptions of free market economics we will be focusing on are: (1)

That workers are compensated fully for risky jobs and (2) that workers’

lives can be monetized and used to weigh costs and benefits in a CBA

The next 5 slides will examine the first assumption. Before you look at the

graphs of fatalities and injuries by occupation, think about what occupations

and jobs you guess will be the most dangerous. Also, does the theory of

compensating wage differential work? In other words, are the people doing

the riskiest jobs being fairly compensated for assuming that risk?

Construction; transportation and warehousing; agriculture, forestry, fishing, and

hunting; and mining are the top four occupations in which workers are at risk of

death. (TV fans may have guessed this from watching Ice Road Truckers and

The Deadliest Catch.) If the hypothesis of compensating wage differential

holds up, people in these occupations should receive substantial higher wages

to offset the risk of death.

What do you think?

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This Bureau of Labor Statistics (BLS) chart shows occupations at high risk for

injuries/illnesses. If the hypothesis that compensating wage differential holds

up, people in these occupations should receive substantially high wages to

offset the risk of injury and illness.

Try to apply compensating wage differential theory to these statistics.

Let’s examine one of the top occupations at risk for illness/injury – nurses

aides.

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Is the theory working in the case of nurses aides? Do you know anyone who

has worked as a nurses aide? Have you?

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According to the BLS, in 2011, the incidence rate of injuries requiring days

away from work for health care employees that encompass nursing aides,

orderlies and attendants was 489 cases per 10,000 workers, more than four

times the rate for all workers.

Musculoskeletal disorders, which often result from manual patient handling

activities, are the leading source of injuries for health care workers, especially

for nursing aides, orderlies attendants. In 2010 nursing aides, orderlies and

attendants suffered a higher rate of musculoskeletal disorders than workers in

any other occupation. The incidence rate of work-related musculoskeletal

disorders for nursing aides, orderlies and attendants was 249 per 10,000

workers compared to an average rate for all workers in 2010 of just 34 per

10,000 workers.

Workplace violence is another major concern for nurses aides and other health

care workers. In 2011, nursing care facilities workers had an injury-incidence

rate of 27.2 per 10,000 from assaults and violent acts, seven times the overall

private-sector workplace violence injury rate of 3.8 per 10,000 workers.

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Source: Public Citizen’s Congress Watch. (2013) Health Care Workers

Unprotected: Insufficient Inspections and Standards Leave Safety Risks

Unaddressed.

* What is the federal poverty guideline? The federal poverty level (FPL) is the set minimum amount of gross income that a family needs for food, clothing, transportation, shelter and other necessities. In the United States, this level is determined by the Department of Health and Human Services. FPL varies according to family size.

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The second fundamental assumption of free market economic theory is that

workers have a choice of whether or not to take a risky job.

Think about your family’s occupational safety and health history. Did your

grandparents and parents face a choice between safety and more pay? Do

you think they freely chose the risk? Do you think the risk they assumed was

acceptable?

A side note: You may have noticed that I rarely use the term “accident” and prefer incident, event or occurrence. This is because accident is defined as an event that happens by chance or that is without apparent or deliberate cause. Also, the word accident suggests that something occurred that was unpreventable. Work place incidents can - almost always - be prevented. Undesirable work incidents that injure, cause ill health or kill may at first glance appear not to have an apparent or deliberate cause, but upon investigation a contributing cause can - almost always - be discovered. As you have read in the cases studied so far, although unsafe or unhealthful work is rarely maliciously deliberate, it is sometimes the result of neglect, recklessness or just poor management and practice. Now, back to the iceberg!

In a 2007 survey with corporate financial executives, the top benefits of an effective workplace safety program were predominately considered to be financial in nature (for example, increased productivity and reduced costs). This is in keeping with the free-market view of workers safety and health that we examined in this presentation.

You may have heard the term ROI or return on investment – a common “profitability ratio” measure used in business to evaluate the how efficient an investment is. In its most simple form, to calculate ROI the benefit (or return) of an investment is divided

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by the cost of the investment. In other words, will the cost of implementing a safety program or mitigating a workplace hazard pay off?

The ROI on $1 Spent on Safety

A Liberty Mutual Insurance poll of executives shows that for every $1 spent on direct costs related to an accident, there are another $3 to $5 worth of indirect costs...putting the actual cost of an accident (with direct medical and compensation costs of $15,000) at somewhere between $45,000 and $75,000. Most executives polled said that for every $1 their company spent on workplace safety, they saved at least $3.

- Huang, et al (2006)

From my perspective: The case that comes to my mind when I look at the graphic in the slide is the 2006 Gulf of Mexico oil spill where a decision was make by BP executives to forgo investing in a piece of safety equipment that would have cost about $250,000. Investigations determined that this decision led to the explosion of the Deepwater Horizon oil rig in which eleven workers died. The explosion also caused the largest environmental disaster in US history, and ultimately cost BP in excess of $43,000,000,000 as well as untold loss of corporate prestige and social capital.

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Here is the purpose of occupational safety and health framed in another way:

The prime objective of health and safety interventions is to enhance the expected health-related welfare of individuals in the workplace. This principle may appear self-evident, but a review of OSH interventions that include economic analyses suggests that this fact sometimes gets lost . Specifically, many analyses focus exclusively on financial outcomes (e.g., company insurance cost savings or productivity increases), without due consideration of health outcomes….health enhancement is the primary reason for undertaking health and safety interventions. Essentially, human outcome – specifically health in this case – ought not to be replaced by financial outcomes such as productivity or the bottom line. This principle is an ethical statement which is akin to the one that underpins welfare economics in general (Tompa, et al. 2010). .

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From my perspective: I have shared with you that my background is public

health - not economics. In public health our mission is to do “the greatest

good for the greatest number of people”, so I had a difficult time reconciling

that the U.S. economy was built upon theories that argued against creating the

safest workplaces possible. I found Peter Dorman’s book, Markets and

Mortality: Economics, Dangerous Work, and the Value of Human Life, useful in

understanding the perspectives of different schools of economic thought. This

quote from the end of his book motivated me to learn more about economics.

Studying the economics of occupational safety and health has helped me to

make sense of the intersection of health and economics. I hope that my

“learnings” will be useful to you and I look forward to reading your thoughts

and ideas about the economics of risk later in the semester.

“These [free market] ideas will strike many readers of this book as bizarre,

even grotesque. Their worst fears about the icy and impractical abstractions

of economics will be confirmed. I would strongly urge them, however, to take

the theory of wage compensation as a challenge, not an affront. Consider the

formal model carefully. Its conclusions follow by iron necessity once its

underlying assumptions are accepted. Thus, any disagreement must take

place at this level, and it is the responsibility of critics of the model to specify

exactly where and how they would differ. It will not take long before even the

most hardened opponent of economic dogma finds that this is not easily done.

Moreover, I will demonstrate repeatedly in the chapters to come that what

appear to be “killer” arguments either dissolve into irrelevance or possess

much less force than one might think. The critique of compensating

differentials, so easy in the realm of historical and institutional experience, is a

difficult undertaking at the level of theory. Those who accept this challenge

stand to learn something”.

- From Markets and Mortality – Dorman

This presentation just touches on the economics of OSH and is intended to

help you recognize when and how economic arguments are used in defense of

unsafe working conditions or are used to minimize loss of health or are used to

rationalize the death of workers. On the Week 6 page you can access an

article written by Peter Dorman that is an excellent overview of the economics

of OSH. You don’t have to read this article but you may want to keep a copy

filed for future labor studies or human resources classes. We will be revisiting

some of the economic concepts from this week’s presentation when

globalization and new forms of work are explored later in the semester.

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That’s it for the Week 6 presentation.

You may encounter these terms in the assigned readings for Week 6:

Classical economics. It comprises early writers who first molded the study of economics. The classical period begins about 1776 with Adam Smith; embraces Thomas Malthus, Jean-Baptiste Say, and David Ricardo; and concludes about 1860 with John Stuart Mill. Deductive reasoning. Deduction begins with the general and ends with the specific. Deductive arguments are based on laws, rules, or other widely accepted principles. Deindustrialization. This is the decline in the manufacturing sector and rise of the services sector of the economy. Since manufacturing jobs pay well, one consequence of deindustrialization is a decline in wages and the average standard of living. Deregulation movement. During the 1970s, it was felt that regulation more often served the interests of the regulated industries than those of the public. This belief, in part, caused both liberals and conservatives to dismantle many New Deal-era economic regulatory rules. Economic determinism. The belief that all political issues or problems are caused by factors that are ultimately economic and ignores the independent effects of interpersonal conflict, race and ethnicity, religion, regional rivalry, or socialization. Fellow Servant Doctrine. The principle that employers are not liable for injuries to an employee if the cause were the negligent action of a second employee. This doctrine has been largely superseded by workmen's compensation laws, under which costs for job-related injuries are paid from a state-administered fund regardless of who is at fault. Inductive reasoning: Moves from the specific to the general. Arguments based on experience or observation are best expressed inductively. Institutional Economics (or normative economics). This orientation stresses humanitarian values in economic analysis as opposed to the hard realities of market analysis. Laissez faire. From the French expression for "to leave alone," this conservative notion holds that the government should have as little as possible to do with the economy because private ownership, market-based decision making, and free trade will optimize public welfare and raise the standard of living. This view was especially popular between the Gilded Age and the Great Depression. Mainstream economics (or positive economics). Rooted in the scientific method, mainstream models find ways to explain behavior through algebra, statistics and graphs. Market power is the ruling factor. Neoliberalism. Originally coined by its critics and opponents, "neoliberalism" is a label referring to the recent reemergence (1970’s and 1980’s) of laissez faire. Positive economics. This economic analysis relies heavily on quantification, as opposed to normative argument. Postindustrial state. This term, coined by Daniel Bell, refers to the demise of manufacturing in the United States

after 1970 and the rise of less lucrative service industry occupations. Protective Regulation. During the 1960s, the federal government enacted a wide range of consumer protection, environmental, and auto safety legislation that was aimed at safeguarding the public's health and safety. This is sometimes called "new-style" regulation to distinguish it from the "economic" regulation of the New Deal era. Reaganomics. The economic policies associated with the presidency of Ronald Reagan (1981-1989), included reduced spending for social programs, supply-side tax cuts, deregulation and marketization of decision making, devolution of social policies back to the states, and the privatization of governmental services. Taft-Hartley Act of 1947. Named for Senator Robert Taft (R-OH) and Representative Fred Hartley (R-NJ) and enacted over the veto of President Truman, this act embellished the National Labor Relations Act. The law created the National Mediation and Conciliation Service, developed sixty-and eighty-day "cooling-off" periods before strikes could occur, banned the closed shop, and expanded the list of unfair labor practices that unions could commit. Wagner Act. The National Labor Relations Act of 1935, named after Senator Robert Wagner (D-NY), created the National Labor Relations Board (NLRB) and empowered it to identify appropriate collective bargaining units, conduct representation elections, and define unfair labor practices. Welfare economics. A branch of economics concerned with improving human welfare and social conditions chiefly through the optimum distribution of wealth, the relief or reduction of underemployment, etc.

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