Counting the costs of health and safety laws

Jamie Whyte
EMPLOYMENT minister Chris Grayling has announced plans to streamline workplace safety regulations and “put common sense back at the heart of health and safety”.

As usual, common sense is here an excuse for not thinking very hard. If Grayling approached the matter in a principled way, he would realise that, rather being streamlined, workplace safety laws should be eliminated altogether.

How much workplace safety is the right amount? This is the question that Grayling needs to answer. The cost of safety measures – all those building requirements, fastidious work practices and so on – can be estimated. More difficult is knowing the benefit.

The answer comes from noting that workplace safety is not free to those who benefit from it. The more dangerous a job, the fewer people will be willing to do it and the higher the pay will be. If an employer makes his workplace safer, the number of willing workers will increase and the pay will decline.

So the cost of a safety improvement is borne (in part, at least) by the workers it benefits. Only if the extra safety is worth more to workers than it costs them in reduced pay is it a net benefit to them.

So perhaps the optimal safety level could be determined by workers’ councils. Suppose a safety measure at a firm with 100 employees will cost £100,000. Let the employees vote. Do they prefer the status quo or the new safety measure and a pay cut of £1,000? The pay cut employees are willing to accept measures how much they value the extra safety.

So it does. Nevertheless, a workers’ council will give the wrong answer. Not everyone makes the same trade-off between safety and pay. For example, people who choose to work in dangerous jobs are likely to put a lower monetary value on safety than people who do not. By considering only current employees preferences, the workers’ council would underestimate the value of safety measures to people who do not work in these jobs but would if they were safer.

In other words, this approach is biased in favour of insiders’ preferences and against outsiders’. The same thing explains why unions, who represent only the currently employed, drive wages above the market clearing price and thereby increase unemployment.

Fortunately, employers suffer from no such bias. Employers benefit from improving workplace safety when it costs less than it saves on their wage bill – which depends on the preferences of both current and potential employees. Because the saving on wages measures the value workers place on the extra safety, employers benefit from safety measures just when they are worth more to workers than they cost.

Which means there’s no need for workplace safety laws. Self-serving employers will make the right trade-off without any compulsion. Indeed, safety laws are certain to impose the wrong trade-off. Legislators can’t know the preferences of workers, nor design a system that adapts to their variety. Worse, those who enforce the system, such as the Health and Safety Executive, have no incentive to care about workers preferred trade-offs. They are employed to make employees safe, not prosperous.

Forget the fussy business of streamlining. Grayling should eliminate all workplace safety laws and the agencies that enforce them. He would be doing workers a great service.

Jamie Whyte is a senior fellow of the Cobden Centre and author of Crimes Against Logic (McGraw Hill 2004).