The prevention of occupational injuries and illness: the role of economic incentives
Date
2002
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Clayton, Alan
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Abstract
This paper is concerned with the role of economic incentives in achieving beneficial occupational health and safety outcomes. This debate (to the extent that there has actually been a debate rather than a process of largely uncritical acceptance) has been largely dominated by the issue of insurance pricing and, in particular, experience rating of employer premiums. However, there are at least two other areas in which it has been argued that economic incentives in this area may operate. The first is the operation of the common law action for damages and its impact upon workplace safety. To some degree this involves a conflation with the issue of experience rating since an employer’s workers’ compensation premium will include an amount for indemnifying the employer against their common law liability. However, there have been arguments, beyond that of cost impact, that the common law action provides a spur to safety outcomes. Following a range of critical studies, from the mid-1960s, that have deconstructed the nature of the common law action and found it wanting in this and other aspects, this argument is now less rarely advanced and usually as an adjunct to a rights-based argument. Secondly, there are arguments that the labour market itself, through the wages bargaining process, provides a mechanism whereby the market is able to determine an optimum level of safety. These two approaches (namely common law and the mechanism of the labour market) are examined briefly before turning to the major focus of the paper, the workers’ compensation insurance pricing system. In this primary focus, an attempt is made to tease out a number of issues, including basic assumptions, concerning the relationship of insurance pricing to occupational health and safety. The justification for such an exercise is the fact that there has been a lack of conceptual clarity over many such matters. In particular, the current Australian view, at least from the perspective of many workers’ compensation agencies, has been a somewhat celebratory endorsement of experience rated premiums as a means by which the workers’ compensation pricing system can bring about safer workplaces. Such a view seems based more on unexplored assumptions than upon an established empirical record. A critical reading of the impact of experience rated premiums upon actual workplace safety, however, is not to minimise the importance of incentives in this area. Far from it. First, there is agreement upon the fact that experience rated premiums do have an impact upon workers’ compensation claims. However, this is a different matter to a demonstration that such a pricing approach has a significant positive impact upon accidents, injuries and illnesses. Secondly, it appears likely that this form of merit rating may have some positive influence upon rehabilitation and return-to-work activities, although this may need to be balanced by some negative impact upon aspects of the claims management process. Thirdly, there are extremely important issues concerning economic incentives for prevention, both within and outside of the area of insurance premium pricing, which are worthy of further exploration. In particular, the French CRAM has pursued a number of such approaches, apparently with considerable success. Academic approaches that attempted to measure the influence of experience rated premium systems upon workplace health and safety emerged from the mid-1970s, and particularly the 1980s. Even in terms of their own methodology, these studies have shown variable results, ranging from a significant impact, through to no effect and even to an adverse impact upon workplace health and safety. However, more fundamentally, there are some significant methodological issues concerning the nature of data and of variables that are controlled for in the regression analysis undertaken which have the effect of rendering quite problematical the purported conclusions of these studies. These issues are considered at some length in the paper, particularly within the Australian context. The paper concludes with a brief illustration of two approaches to economic incentives in the French CRAM that may offer the basis for other, possibly more fruitful, approaches for economic incentives for achieving safer workplaces.
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prevention, occupational health and safety, occupational injuries, economic incentives, common law action, regulator, experience rating, current practice
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