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November 5,1976 Dangerous Work A book published a couple of years back carried the title "Work is Dangerous to Your Health/' It was neither an attack on the American work ethic nor an entreaty to drop out of mainstream society. It was rather an explanation by a physician and a physical chemist of the vari ous ways in which the modern workplace can kill, maim or other wise impair the health of American workers. The Bureau of Labor Statistics re cently noted that occupational inju ry or illness affects one out of every ten workers at one time or another during their lives. The incidence of injury or illness varies significantly with both industry and firm size. The best advice is to become a broker and not a hod carrier; the number of cases per 100 workers ranges from 2.4 in the financeinsurance-real estate sector to 18.3 in contract construction. Also, stay out of medium-sized plants; the safest plants are generally those employing less than 20 or more than 2,500 workers. Measuring the problem Nonetheless, statisticians differ sig nificantly about the extent of the problem. Estimates of the annual number of occupationally related deaths range from 5,900 (Bureau of Labor Statistics) to 100,000 (Presi dent's Report on Occupational Safety and Health). This dramatic difference shows the difficulty of identifying just what we mean by occupational illness. 1 The BLS number is based upon a survey of employers and includes only what they report as occupa tionally related deaths. However, because of long incubation periods for many industrial illnesses and the great mobility of the labor force, the relationship between job and illness is often tenuous. Coal had been mined for more than 200 years in this country before pneumoconi osis (black lung) was officially rec ognized. The asbestos industry was a good 40 years old before it was realized that asbestos fibers can become imbedded in the lungs and cause lung cancer. Only in 1974 did angiosarcoma (a rare liver cancer) begin to appear among workers exposed to vinyl chloride—the cor nerstone of the 65-year-old plastics industry. And just this year, poten tial genetic damage was traced to chloroprene, an important ingre dient in synthetic rubber since the 1930's. The basic problem is neither the maliciousness of employers nor the carelessness of workers. Rather, it is a case of medical ignorance accom panied by a lack of market incen tive to enlightenment. When a new product is developed, such as as bestos or vinyl chloride, employers are chiefly concerned with meeting the new public demand, while workers are mainly concerned with moving either from unemployment or low-paid work to the higherpaid jobs in the growing industry. Individual workers have neither the training nor resources to test new (continued on page 2) Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, nor of the Board of Governors of the Federal Reserve System. substances for their effect on hu man health. Employers also have little economic incentive to do so, since testing is costly both in terms of actual expenditures and the op portunity costs associated with pro duction delays. at rates similar to those of the late 1930's, and this situation plus the growing attention to occupationally induced diseases led to demands for a more effective approach. The result was the Occupational Safety and Health Act of 1970. Liability and legislation During the nineteenth century a worker's health and safety was gen erally considejed to be his own responsibility, based upon several common-law principles. One gov erning principle, consistent with a free-market determination of wages and working conditions, held that when a worker accepts a job he also accepts any risks asso ciated with it. But by the early twen tieth century the concept of em ployer liability emerged in the form of workmen's compensation legis lation. These laws created, on the part of the employer, an incentive for accident prevention. Living with OSHA The Act established the Occupa tional Safety and Health Adminis tration in order to improve working conditions through the creation and enforcement of health and safety standards. Labor leaders have criticized OSHA for being under staffed and ineffective, and industry leaders have criticized it for adopt ing unnecessarily stringent stand ards and sending unqualified in spectors into the field. Such battle lines are inevitable in what is often a zero-sum game. With these laws in place and with growing attention paid to the costs of accidents, work-injury rates in manufacturing declined by almost half between 1926 and the begin ning of World War II. Injury rates fluctuated considerably thereafter, falling during peacetime but rising during war periods such as World War II and the Vietnam conflict, as a reflection of the wartime intensifi cation of economic activity and the mass entry of inexperienced work ers into the workforce. Indeed, by 1970 work injuries were occurring New legislative demands arose during the early 1970's, sparked by lack of satisfaction with OSHA's effectiveness— it has established standards for only a handful of the 30,000 substances now on the market—and by the recent head line stories about kepone and PCB's (polychlorinated biphenyls). The result was the Toxic Substances Control Act, which was signed by the President last month. The Act requires manufacturers to notify the Environmental Protection Agency 90 days before a chemical is produced or put to a new signifi cant use. The Toxic Substances Control Office (within EPA) has the task of reviewing notification forms for 50 to 1,500 newly developed chemicals each year and determin ing which require testing. The bill nonetheless was watered down from its original wording. For exam ple, one deleted section of the bill would have required pre-market testing of all substances, which chemical firms claim could cost $100 to $200 million annually and slow down the introduction of new improved products. How safe? How healthy? An assessment of the new Toxic Substances Control Act—along with its companions, the Environ mental Protection Act and the O c cupational Safety and Health Act— really involves two questions. First, to what extent do we want to take our productivity gains in the form of a cleaner environment and a healthier workplace, as opposed to higher incomes? To the extent that the market process fails to translate individual preferences on this trade-off into a socially desirable resolution, the political process be comes the appropriate arena for decision. But can the market work in these cases? We know that environmental damage is external to the price system and requires a collective solution, but the situation is not the same for workplace hazards. When workers accept employment they accept a certain wage and a certain set of working conditions, includ ing a level of risk of injury or dis ease. If the worker were aware of another job with a better package of wage plus job conditions, then he could move to that job. Theoret ically, for any given skill level, compensating wage premiums would emerge for jobs with less desirable working conditions. How ever, even in theory, the worker would not be able to take advan tage of those compensating wage premiums if he were not aware of the various health risks involved. So, while workplace hazards are not externalities like environmental hazards, the market still does not reduce them to an optimal level— nor compensate for them in an optimal fashion— if workers are not fully aware of their presence. But just because a healthier work place is a good thing does not mean that every attempt to achieve that goal is an equally good thing. That brings up our second question—are our present efforts to produce a healthy workplace (and a clean environment)—actually efficient? That is, are the net benefits created by legislation both positive and greater than those which could be created by alternative methods? It's still too early to tell, although we should continue to press for an answer from the people who make health and safety decisions. The real payoff may be 20 years down the road, with the reduction in occupa tionally related health problems as a result of today's research and standard-setting in the field of toxic substances and workplace design. Michael Gorham uo;8u!qsEyV\ . qetn • uofteJO • epeA0 |\| . oqepi • E jU J O p |E 3 . E U O Z J jy . E>|SE|V ovo MEM EH BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT (Dollar amounts in millions) Selected Assets and Liabilities Large Commercial Banks Amount Outstanding 10/20/76 + + + + + + + + Loans (gross, adjusted) and investments* Loans (gross, adjusted)—total Security loans Commercial and industrial Real estate Consumer instalment U.S. T re a s u ry s e c u ritie s O ther securities Deposits (less cash items)—total* Demand deposits (adjusted) U.S. Government deposits Time deposits—total* States and political subdivisions Savings deposits Other time deposits! Large negotiable C D ’s 90,212 68,816 1,588 22,356 20,901 11,553 8,758 12,638 90,068 25,809 446 62,364 5,067 28,224 26,745 10,814 Weekly Averages of Daily Figures W eek ended 10/20/76 Member Bank Reserve Position Excess Reserves Borrowings Net free(+)/Net borrowed (-) Federal Funds—Seven Large Banks Interbank Federal fund transactions Net purchases (+)/Net sales (-) Transactions of U.S. security dealers Net loans (+)/Net borrowings (-) Change from 10/13/76 - + + - + - - 616 351 14 170 53 23 118 147 870 923 136 30 22 268 140 238 Change from year ago Dollar Percent + 4,274 + 4,550 + 727 392 + 1,249 + 1,273 + 7 283 + 3,497 + 2,088 + 58 + 1,564 747 + 6,888 - 3,349 - 5,062 W eek ended 10/13/76 + - 37 1 38 + + 12 + 424 + 114 4.97 7.08 84.44 1.72 6.36 12.38 0.08 2.19 4.04 8.80 14.95 2.57 12.85 32.28 11.13 31.88 Comparable year-ago period 18 0 18 - + + + + + + + + + + + - + 1,164 + + 18 7 11 + 1,029 + 354 ♦Includes items not shown separately, in d iv id u a ls , partnerships and corporations. Editorial comments may be addressed to the editor (William Burke) or to the author. . . . Information on this and other publications can be obtained by calling or writing the Public Information Section, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120. Phone (415) 544-2184.