May 17, 2012 | 10
Costly safety upgrades, nitpicky government inspection and resulting fines are often blamed as being bad for business. But a new study shows that when government job-safety inspectors make a surprise visit, they actually enable companies to save money—and jobs—for years to come.
Occupational safety has improved immensely over the decades, but in industries with traditionally high injury rates, such as manufacturing, lumber or food processing, work is still dangerous, putting employees at risk and leaving employers vulnerable to expensive accidents. But how much can just one safety inspection help?
Quite a bit, the new analysis suggests: Just one inspection saved companies 26 percent on workers compensation claims over five years.
Of 818 companies with more than 10 employees, the 409 that were randomly selected for inspections saved an average of $355,000 over five years in worker injury claims and compensation at each firm, compared with the other 409 similar companies that were not inspected.
And that’s no small potatoes for most of these places of business. In the sample, that savings worked out to be about 14 percent of the average annual payroll of these companies. What’s more, this added focus on safety did not lower company profits or workforce size. The findings were published online May 17 in Science.
Studying the economic impact of safety inspections on businesses can be tricky because most checks target companies that have had violations or complaints, thus skewing the sample. For this study, however, the researchers took advantage of a program started in the 1990s in California’s Division of Occupational Safety and Health Administration (Cal/OSHA), which conducts some of its inspections at random—not just at workplaces with recent complaints or accidents. “The randomized inspections provided a perfect natural experiment that uses the power of randomization just like a medical clinical trial,” Michael Toffel, Harvard Business School professor and co-author of the new paper, said in a prepared statement. This sample allowed them to assess the actual impact of inspections on operating costs, credit rating, job retention, company survival and sales, the researchers noted.
“Across the numerous outcomes we looked at, we never saw any evidence of inspections causing harms,” Toffel said. In the sample, they actually saw slight gains in firm survival, payroll, creditworthiness, sales and employment in the companies that had been inspected.
If these randomized inspections were rolled out to businesses across the country, the researchers estimate that they would save some $6 billion—not to mention the physical and psychological harms of workplace injury and death.
The takeaway message, Toffel said, is that the inspections succeeded in improving safety without appreciably increasing the cost of doing business. And that random, mandatory inspections are a worthwhile investment rather than voluntary compliance programs. Further research, they assert, should look more closely at what types and sizes of businesses benefited the most from random inspections so that OSHA can target its work most effectively. Until then, maybe those government inspectors shouldn’t be so much maligned.