Study finds that safety inspections save lives, billions in workers’ comp costs

Government enforcement of workplace health and safety rules can save lives and billions of dollars for employers nationwide through reduced workers’ compensation costs, according to a new study in the journal Science, published May 18, 2012.

The study, co-authored by Harvard Business School Professor Michael Toffel, Professor David Levine of the Haas School of Business at the University of California, Berkeley, and Boston University doctoral student Matthew Johnson, examined workplace safety inspections conducted by California’s Division of Occupational Safety and Health (Cal/OSHA).

To reach their conclusion, the authors examined data on 409 California businesses randomly inspected by Cal/OSHA from 1996 through 2006 and 409 similar workplaces that were eligible for inspection but weren’t inspected in that time period. The authors focused on California because the state carries out some of its inspections on workplaces selected at random. The researchers used workers’ compensation claims over the period ranging from four years before through four years after the inspection to determine illness and injury rates. They also examined injuries during the same block of time for the companies that weren't inspected.

“The randomized inspections provided a perfect natural experiment that uses the power of randomization just like a medical clinical trial,” Toffel said. “Because Cal/OSHA typically inspects facilities following complaints or recent accidents, you can’t study those inspections to get an unbiased understanding of whether they make a difference. By studying the inspections Cal/OSHA conducted at workplaces selected at random, we were able to overcome this problem to learn the actual impact of inspections.”

The study’s findings counter the arguments made by anti-regulation critics and business groups that government regulation of industry safety kills jobs and harms companies’ profits.

“These inspections appear to be creating value for the firms that they are visiting in terms of reduced workers’ comp costs and frequency of injuries,” said Toffel.

Key findings

Workplace injury claims in high-hazard industries dropped 9.4 percent at businesses in the four years following a randomized Cal/OSHA inspection, compared with employers who were not inspected, according to the study. Those same employers also saved an average of 26 percent on workers’ compensation costs, compared to similar companies who were not inspected. The average employer saved $355,000 (in 2011 dollars) as a result of an inspection, according to the report. Translated to the nation as a whole, Toffel estimated that OSHA inspections nationwide could be saving employers $6 billion.

“We spent several years collecting data, not just on injuries, which is very important, but also on other indicators to see whether inspections led to problems they are often accused of causing, like whether they increased costs and led to the elimination of jobs,” said Levine. “We looked at company survival, employment, sales and total payroll to see if inspections were detrimental to the employers,” and found no discernible impact on company profits, he added.

Industry groups have expressed their criticism of the study, alleging that the methodologies used and conclusions arrived at are flawed. Some of these criticisms include the applicability of the findings, which have been described as narrow, because the companies targeted for the study are all in high-risk industries, and that the study failed to consider whether the regulations that OSHA enforces—rather than the inspections—hurt companies or protect workers. “Random inspections happen after the fact, so if any job losses were to happen due to regulations, they would have happened before the inspection took place,” said the National Association of Manufacturers in a statement.

Looking ahead

Beyond workplace safety, the authors believe that randomized trials could be used widely throughout government and business to evaluate new policies, from environmental regulations to educational programs. “More trials like this would help us find out where regulations work and where they don’t,” Toffel said. “Because the cost of regulations is very real, governments should be investing constantly to learn how to make them as effective and efficient as possible.”

Roy Maurer is a staff writer for SHRM.

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