HOW HEALTH AND SAFETY MAKES GOOD BUSINESS SENSE

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Workplace injuries and illnesses: costs and causes

In Brief

Two main types of productivity cost arise from workplace incidents and illnesses - direct and indirect. The first are tangible and measurable, the second are harder to measure.
Estimates of the hidden costs of workplace injury and illness vary greatly - anywhere between 0.5 and 20 times wage and/or salary costs. (Oxenburgh, 1991; William et al, 1997; Doorman, 2000; Viscusi, 2004; Burton et al, 2005; Oxenburgh and Marlow, 2005; NOHSAC, 2006)
One analysis says health and rehabilitation costs make up 14 per cent of the economic and social costs of occupational disease and injury. (Pezzullo and Crook, 2006)
A 2002 Department of Labour study showed the total social and economic costs for 15 people who suffered injury or illness were $1.167 million. The projected future costs for seven of them were expected to be $3.986 million. (Adams M et al, 2002)
By 2004-2005, New Zealand's Accident Compensation Corporation (ACC) had paid out $5 billion in compensation to workers, amounting to 4 per cent of gross domestic product.
Only 2 per cent of the full costs of occupational injury and illness ($20.9 billion in 2004-2005) are compensated.
Changes in the organisation of work, such as the decline of full-time employment and the rise in casual labour, can have negative consequences for the health and safety of some groups of workers. (Tregaskis, 1997; Felstead and Jewson, 1999; Vosko, 2000; Campbell and Burgess, 2001; Walters, 2001; Tucker, 2002; Butcher, 2002; Quinlan, 2003; Watson et al, 2003; Frick, 2003; Lewchuk et al, 2003, Shain and Kramer, 2004; Hannif and Lamm, 2005; James, 2006)

The costs

Since the 1960s, some attempts have been made to investigate how workplace injuries and illnesses affect productivity, and the subsequent costs to both the company and the employee.

This is a complicated task that has stimulated a number of academic debates, not least because of the tendency to concentrate on the tangible, direct costs of injuries rather than the more ambiguous, indirect costs and the chronic costs associated with illnesses.

"The loss of worker productivity resulting from health problems is an indirect health cost to corporations that is largely unmeasured... Direct costs are much easier to quantify than indirect costs." (Burton et al, 1999:863)

One thing that is consistent in the literature is recognition of two main types of cost:

Direct or tangible costs- these must be paid by the insurance systems.
Indirect or intangible costs - lost production because of a decline in productivity (often referred to as 'presenteeism') and/or increases in absences, compensation, and pain, suffering or a reduction in quality of life.

How these two different types of cost affect individuals, families, workmates, the business and society at large is summarised below:

	Intangible	Tangible
Victim	Pain and suffering. Moral and psychological suffering (especially in the case of a permanent disability).	Loss of salary and premiums. Reduction of professional capacity. Loss of time (medical treatments).
Family and friends	Moral and psychological suffering. Medical and family burden.	Financial loss. Extra costs.
Colleagues	Bad feeling. Worry or panic (in case of serious or frequent incidents).	Loss of time and possibly also of premiums. Increase of workload. Training of temporary workers.
Company	Deterioration of the social climate. Bad reputation. Weakening of human relations.	Internal audit. Decrease in production. Damages to the equipment, material. Quality losses. Training of new staff. Technical disturbances. Organisational difficulties. Increase of production costs. Increase of the insurance premium or reduction of the discount. Administration costs. Legal sanctions.
Society	Reduction of the human labour potential. Reduction of the quality of life	Loss of production. Increase of social security costs. Medical treatment and rehabilitation costs. Decrease of the standard of living.

Economic literature categorises tangible and intangible costs in three ways:

Costs in anticipation: These deal with managing risk and are the costs associated with developing, implementing and maintaining occupational health and safety systems to prevent or mitigate injuries and illnesses.
Costs as a consequence: These arise when someone is injured or becomes ill in their workplace, and affect the employee, the employer and the public. An example is 'opportunity costs', such as the loss of production because of employee downtime. Consequential costs also include fines for negligence. Hidden costs often make up the biggest slice of consequential costs. These can include personal losses suffered by those injured or ill, extra overtime to cover the gap, training for new staff, damage to plant, product and equipment, and higher insurance/compensation premiums.
Costs in response: These costs are incurred by the organisation and the regulatory and compensatory agencies as a result of investigating the injury or illness. Examples are diversion of scarce recourses and the time required to report the incident.

Attempts to estimate the hidden costs of workplace injury and illness vary anywhere between 0.5 and 20 times the wage and/or salary costs.

One analysis to identify the total costs of a workplace injury, and where each cost falls, is shown below. Note that it does not deal with work-related illnesses. In this analysis, direct costs are expenses and damages arising from trying to prevent an injury, or dealing with its consequences.

Total Injury Costs	Individual	Family	Employer	Economy	Societal
Direct Costs
Incident costs*	x		x	x	x
Medical costs	x		x
Non-medical costs	x	x	x
Indirect Costs
Absenteeism			x	x
Productivity losses:
- reduced activity/ability	x			x
- reduced participation	x	x		x
Family worker substitution			x
Worker replacement/ substitution				x
Taxation
Intangible Costs
Loss of life	x	x			x
Loss of life expectancy	x	x			x
Loss of quality of life	x	x			x
Physical suffering	x	x			x
Mental suffering	x	x			x

* Not strictly a cost of injury

New Zealand costs

A 2006 analysis of the economic and social costs of occupational disease and injury in New Zealand came up with five main categories:

Production disturbance costs (12 per cent)
Human capital costs (1 per cent)
Health and rehabilitation costs (62 per cent)
Administration costs (14 per cent)
Transfer costs (5 per cent)
Other costs (6 per cent)

It is difficult to accurately determine the scale of the problem in New Zealand, but there are some indicators:

In 2002, the Department of Labour investigated 15 cases of individuals who had suffered an injury or illness. The total documented social and economic costs were $1.167 million, and the projected future costs of seven of them were expected to be $3.986 million (although there was no indication of how many years this covers).
By 2004-2005, the ACC had paid out $5 billion in compensation to workers, amounting to 4 per cent of GDP. (Note that this figure is thought to be an underestimate as only 2 per cent of the full costs of occupational injury and illness ($20.9 billion in 2004-2005) are compensated.)

The causes

Alongside research into the costs of occupational injuries and illnesses, are investigations into their root causes.

The literature review shows that changes in the organisation of work that result in the decline of full-time employment and the rise in precarious work and casual labour have consequences for the health and safety of some workers.

Among the range of new organisational practices are:

organisational restructuring, such as downsizing and outsourcing
flexible and quality management initiatives (for example, modular manufacturing and high performance work systems)
the use of temporary and contingent labour.

While some argue the new systems of work organisation are critical in maintaining business competitiveness and increasing productivity and performance, others have focused on the health and safety risks that these trends pose.

"... available evidence indicates that labour market restructuring is having a significant (adverse) but often hidden impact on OHS. In many cases, these effects are compounded by competition, labour market and health care policies introduced since in the 1980s." (Quinlan, 1999:427)

The changing organisation of work may also directly influence the level of exposure to physical and psychological hazards in the workplace. For example, workers with multiple jobs or extended work shifts might be at risk of exceeding permissible exposure concentrations to industrial chemicals, while long working hours and staff reductions may increase the risk of over-exertion injuries.

How these health and safety impacts are measured, and how to gauge the success (or otherwise) of OHS interventions, has generated a great deal of discussion. This is discussed next.