1423class22 - 14.23 Government Regulation of Industry Class...

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14.23 Government Regulation ± of Industry± Class 22: Regulation of Workplace Safety MIT & University of Cambridge± 1
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Outline • Markets for health and safety • Health and safety and information • OSHA approach • Effects of OSHA policies • Reform of OSHA 2
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The Market for Health and Safety $ Why does the market not deliver S*? MC of safety MV of safety 0 S* Safety Level 3
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Why does the labour market help enforce health and safety? $70 bn dollar p.a. premium because of risk at work. Premia do reflect risks associated with job (values of life recovered from this type of analysis). Workers and consumers well informed about product and hence enforce standards via reputation effects. 4
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Can we rely on the market to enforce health and safety? Adam Smith observed that workers demand higher pay for more risky or unpleasant jobs. This depends on: awareness of risk and preference for safety/health. Evidence is that some people are prepared to take more health and safety risks (and these are positively correlated). Hersch and Viscusi (1990) find that smokers and those who don’t wear seatbelts much more willing to take hazardous jobs. What does the above mean for incentives facing firms to lower safety risk? health risk? 5
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Can we rely on the market to enforce health and safety? Workers must be aware of the risks they face for the differential wage theory to fully reflect true preferences for risk. It does appear to be the case that perceptions about safety risk do match actual risks (U of Mich Survey of Working Conditions). However the evidence is that workers are not perfectly informed.
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