The Fight Over Job Safety

...The business community-which resents any government intervention-has not been overly enthusiastic either...

...In fact, the struggle continues despite the new man in the White House...

...As an alternative to an injury tax, the Schultze memo also suggested increased workmen's compensation payments...

...An injury tax would retain (or even sharpen) the " punitive" aspect of OSHA, and give employers no information about how to make jobs less hazardous...

...The logic of the injury tax is the same as that of the pollution tax: Rigid structures that apply imperfectly to diverse situations would be avoided, and firms would be encouraged to develop the lower-cost ways of reducing accidents...

...Unions have pressed for strict regulations and tough enforcement to protect workers from the likes of vinyl chloride and DBCP (the pesticide recently linked to sterility among those exposed to it), while business has denounced most OSHA regulations as inflationary cost burdens that do little to promote their announced aims...

...And an important, if somewhat quixotic, role in it is now being played by professional economists like Schultze, who bring to their thinking a set of conceptual tools that allow them to answer almost any question of public policy by applying the maxim, "Use the market...

...they were further encouraged by the President's appointment of Eula Bingham, a professor of occupational health at the University of Cincinnati, to head the agency...

...But much of what has been claimed about the inapplicability of OSHA rules is grossly exaggerated...

...Advocates of an injury tax often repeat the more bizarre examples taken from anti-OSHA propaganda-regulations that are wildly inappropriate to workplace conditions-and wax poetic about how, freed from a regulatory straight-jacket employers will discover new, cheaper solutions to safety problems that are adapted to the specific conditions of their plants...

...In a heated attack on the Schultze memo in the New York Times, Senator Williams charged that increasing, say, workmen's compensation payments would help victims of injury after the fact, but would do nothing to prevent injuries...

...At the heart of the document, thought to be chiefly the work of Schultze, was a call for a shift in the way the government promotes job safety-away from mandatory regulations and toward the use of "economic incentives," such as increases in workmen's compensation payments or the introduction of a tax firms would be compelled to pay based on the number of injuries their workers sustained...

...During the Ford Administration, OSHA appeared to be losing the battle on both fronts (at least at the Presidential level-what went on when the agency made its decisions was often another matter entirely...

...It is much better, therefore, to use taxes or other economic methods to modify market incentives...

...A regulatory solution would limit the maximum permissible discharge of Noxious Substance at 1,000 pounds annually per plant...

...for that task, he continued, regulations are necessary...

...Under this system, firms could pollute as much as they chose to, provided they paid the tax...

...the restraints on the many decentralized decision-makers out there would then be their own interests...

...But, Schultze argued, dealing with those failures by means of strict rules that tell companies precisely what they can and cannot do, and require Washington to send out an army of enforcement agents, creates numerous difficulties...

...The Schultze proposal probably could only gain business support if the injury tax were set so low that employers regarded it as less onerous than existing regulations...

...Thus a plant that continued to produce 2,000 pounds of Noxious Substance would pay a $40,000 annual levy...

...The political battle that has raged over OSHA since its inception has reflected two larger conflicts...

...The first is the classic confrontation between labor and management...

...That's what the basic fight over OSHA is all about, and any workable scheme must come to grips with it...

...if both plants complied, the total emission level would be the acceptable 2,000 pounds...

...Labor has already angrily rejected it, in part because the rhetoric economists use is heavily laced with buzz-words (like "overregulation") that unions associate with business opponents of OSHA, and in part because most of the economists favoring an injury tax also believe (wrongly, in many instances) that the agency's decisions tend to impose unreasonably stringent levels of protection...

...In the case of occupational safety and health, the favored plan involves replacing regulations with an "injury tax...

...The second is the controversy about how deeply the government should involve itself in the economic life of the nation, spanning issues from laetrile and saccharin to air fares and trucking rates...

...In an editorial endorsing the Schultze plan, the Times pointed out that employers did not at present have to bear "the full cost of accidents...

...But the major issue continues to be how high a level of costs should be imposed, and on whom...

...For one thing, any bureaucratic rule that must be applied uniformly to the multitude of real-life situations that exist in a particular area is bound to create terrible distortions...

...one of the authors of the 1970 legislation that created OSHA, and union spokesmen on occupational safety and health issues denounced the Administration trio's approach as an attempt to "gut" the agency...

...Carter, meanwhile, has formed a task force to look into the idea...

...The last 1,000-pound reduction costs close to three times as much as the first because there is typically what economists call an "increased marginal cost" to environmental cleanup-the more one tries to reduce emissions, the more expensive it becomes to remove an additional unit...

...Now let's look at what would happen if, instead of a uniform maximum emission level, a pollution tax of $20 per round of Noxious Substance were set...

...But let's imagine (as is frequently the case) that Plant A is a spanking new facility where the yearly cost of bringing down pollution levels is very low, while Plant B is a creaky old place where the costs of reducing emissions is astronomical...

...Economists recognize, of course, that occupational safety and health or environmental regulations are a result of market failures...

...They have been published in Harper's magazine, and will be issued shortly as a book by the Brookings Institution...

...And that brings up a key issue in evaluating the economists' entire thrust...

...Nevertheless, the desired outcome in terms of total emission reduction (down to 2,000 pounds a year) would be achieved-except that because the tax system has a flexibility regulations lack, the yearly price tag would be $39,000 instead of $110,000...

...my guess is that were an injury tax instituted, and were employers under pressure to reduce injury rates, most would dust off old copies of OSHA regulations to find out what they ought to do...

...The Fight Over Job Safety by steven kelman Late last May, Council of Economic Advisors Chairman Charles L. Schultze, then-un-embattled Budget Director Bert Lance and domestic affairs advisor Stuart Eizenstadt drafted a memo to President Carter on the future of the controversial Occupational Safety and Health Administration (OSHA...

...The incentives economists are offering appear to be an appealing way out of some of the most difficult dilemmas we face in designing policies to correct market failures...

...Yet for $39,000 Plant A could eliminate its tax liability entirely, and save $1,000 as well...

...Schultze outlined his views on future directions for government regulation-views the vast majority of his fellow practitioners would endorse-when he delivered the Godkin Lectures at Harvard last year...

...if they were required to do so, the Times contended, changes would be instituted...

...Suppose two factories each currently spew into the air 2,000 pounds annually of a Noxious Substance for a total of 4,000 pounds of emission, and it has been determined that more than 2,000 pounds of Noxious Substance in the atmosphere could cause people to die of respiratory ailments...

...Two of the major business objections to OSHA have been that it is punitive (agency inspectors assess fines for noncompliance), and that it does not give employers enough positive guidance in making conditions safer...

...This means that a total annual expenditure of $110,000 ($10,00 by Plant A and $100,000 by Plant B) would be necessary to achieve the desired goal through regulation...

...Williams misses the point that if the cost of doing X goes up, people will seek to change their behavior so as to reduce how much of X they do...

...For ancient Plant B, however, getting down to the standard of 1,000 pounds would cost $100,000, and eliminating emissions would run an additional $290,000...

...Yet it is exactly the size of these " full " costs (of pain or loss of life) that is now at issue in setting levels of protection for occupational safety and health regulations, and would continue to be disputed in setting injury tax rates...

...For example, it offers no on-site consultation services...

...Indeed, Plant A could cut its emission level of Noxious Substance to the proposed standard of 1,000 pounds for just $10,000, and could reach zero emission for another $29,000...

...It should be noted, though, that the inflexibility of bureaucratic regulation depends, as the pollution example demonstrates, on the particular situation...

...As for Plant B, the costs of pollution reduction would be so great ($390,000 would have to be spent to avoid a tax of $40,000), its managers would probably not do anything about pollution, preferring to pay the tax...

...Given this set of economic facts, managers at Plant A would undoubtedly choose to get rid of emissions...

...Plant B's $40,000 pollution tax is not regarded as a net social cost, since it is money deposited in the public coffers that may be used to build hospitals, swimming pools, mass transit systems, etc...

...Bert Lance was named one of its cochairmen, but his departure from Washington hardly means the memo is dead...

...In other words, the government would not tell firms that power presses must be guarded or that guardrails have to be placed along the perimeter of construction sites, but would simply require them to pay a penalty each time a worker is injured...

...And no one would argue that their approach is entirely without merit...

...This is similar to a tax, the only differences being that, first, the payment goes to the injured worker rather than to the government, and second, because many companies pay for workmen's compensation through insurance premiums, a firm's particular accident experience is not fully reflected in payment levels...

...No sooner had the memo been leaked to the press than Senator Harrison A. Williams (D.-N.J...

...There is no objective way to determine how high or low an injury tax should be set (and the same problem exists for a pollution tax once we move beyond the simple world of Plants A and B...

...Steven Kelman, a frequent contributor, is completing a PhD dissertation on OSHA and its Swedish counterpart...

...And economists have in recent years devoted a considerable amount of their talents to developing a number of frequently quite clever market-based schemes for overcoming social ills that have been associated with market failures...

...Unionists thought the siege days would end with Jimmy Carter's election...

...The real problem with the Schultze prescription for OSHA is political in nature, in the sense that it has little chance of winning the approval of the interested parties...

...The rhetoric about overregulation notwithstanding, the Schultze plan has not been received much more warmly by management...

...The best-known work advocating an injury tax includes a general denunciation of OSHA for imposing excessive costs on business, and was published by a conservative think tank, the American Enterprise Institute...

...A simplified illustration taken from the field of environmental protection, where economists have the most experience with their approach, shows the social advantages they see in market incentives...

...The point of all this, stressed repeatedly by economists, is that the use of taxes to adjust the market mechanism, rather than regulations that put it out of commission, offers maneuverability and efficiency in the place of rigidity and waste...