levels of demand and supply would adjust until a new full-employment equilibrium was achieved. In the present U.S. economy, however, where prices and wage rates are not completely flexible and workers are not perfectly mobile, either geographically or occupationally, significant employment effects may persist over a period of years. The argument often made by supporters of OSH regulation, that workers in dangerous jobs have no safe alternatives other than unemployment, also implies that those same workers will surely have trouble finding new employment if their jobs are eliminated through regulation.

The inflationary impact statements on the proposed standards for coke oven emissions and for exposure to inorganic arsenic illustrate how OSHA standards may cut either way on employment. In the case of inorganic arsenic, the IIS estimates that between 2,900 and 3,700 jobs will be lost if the standard is imposed.187 The impact would be especially severe in the arsenical wood preservative industry where, it is estimated, employment would decline by 1,600 workers, about 29 percent of the current production force.188 In contrast, the coke oven IIS estimates that employment in coke oven departments would rise by 5,000 or more due to a decline in productivity of between 18 and 29 percent.189

RECOMMENDED DIRECTIONS FOR REFORM

Our introductory caveat should be repeated: This report is an overview of OSHA, not a definitive study. Nevertheless, given the importance of the occupational safety and health issue, and the controversial nature of OSHA itself, we feel compelled to go beyond a mere review of the literature, to formulate tentative recommendations. Ideally, these recommendations will be validated, or rejected, in the not-toodistant future on the basis of more extensive studies of OSHA.

Two considerations strongly urge an early evaluation of OSHA (for which this overview could serve as a motivating input).190

First, under the direction of both Eula Bingham and her immediate predecessor, Morton Corn, OSHA has embarked on a number of initiatives, many of which respond to perceived inadequacies of past performance. Several of the important actions taken under Dr. Bingham are discussed in the Postscript to this report. It is as important that these initiatives be recognized and applauded if they prove beneficial, as it is that they be curtailed if inefficient or counterproductive. An evaluation can show where past criticisms either were misguided or have been met.

Second, and more important, OSHA is devoting significantly greater resources to health protection, a field where the justification for Government intervention is relatively strong. OSHA's potential for protecting workers will be substantially enhanced as its involvement with health grows. It is also true, however, that its ability to impose significant, quite possibly unreasonable, costs on both industry and workers will also be much greater. These new departures warrant an assessment of OSHA's performance and its methods.

1 U.S. DOL. "IIS: Inorganic Arsenic," p. VI-11.

18 Thid., pp. VI 11, VI-17.

1.S. DOL. "IIS: Coke Oven Emissions." pp. 25. 81.

100 The Interagency Task Force on Workplace Safety and Health, created by President Carter and discussed briefly in the Postscript to this report, hopefully will provide the kind of thorough evaluation advocated.

The importance of this review task, we believe, justifies what might appear to be the presumptive nature of some of the discussion that follows. Still, we caution that the proposals that follow reflect insights gained in a brief period of study. They are presented more to stimulate discussion and thinking than to serve as a blueprint for reform of the agency. Whatever the merits of these proposals, there can be no question that OSHA is at a critical stage, and that beneficial reform could yield great dividends. A key task before OSHA, Congress, the executive branch, and concerned analysts is to determine which reforms are likely to prove beneficial.

OSHA'S ROLE

A Complement to Incentive Mechanisms

Our earlier review of decentralized incentive mechanisms for promoting occupational safety and health-the market and the government-involving mechanisms, workmen's compensation, tort law, and taxes-suggests that those approaches have strong theoretical merits. The encouragement and provision of appropriate incentives should be a major part of any overall governmental effort to generate appropriate levels of safety and health in the workplace.

The primary government-provided incentive system in place at present is workmen's compensation. If compensation laws were modified to tie each firm's costs more closely to its own safety recordthrough greater use of experience rating and requirements that insurance policies include substantial deductibles and coinsurance ratesincentives for providing safer conditions could be increased significantly. A tax system designed to account for externalities-costs borne by neither the worker nor his employer, but rather society at largeshould also receive careful consideration and study, perhaps as an adjunct to existing workmen's compensation systems.

Decentralized incentive approaches are perhaps less promising as a primary approach in the health area. Problems associated with identifying cases of occupational illness and of connecting them with specific periods of employment render doubtful the use of workmen's compensation. Similar problems exist with regard to taxes on illnesses, although taxes on hazardous conditions, or even better, levies on worker exposure to health threats, might be a most effective means to promote OSH. Such taxes would probably be no more difficult to monitor and enforce than the current standards system.

Although we believe that decentralized systems can and should ultimately play a much more significant role than they do now in improving occupational safety and health, we recognize that major responsibilities will and should continue to rest with OSHA. This judgment is both political and analytic. Congress has charged OSHA with a mission. The enabling legislation for OSHA made it quite clear that Congress did not intend that occupational health and safety be fully relegated to a decentralized framework, relying wholly on monetary incentives. Moreover, contracts for occupational risks and wages are drawn on far from perfect markets. Some of the more significant imperfections can best be dealt with through some form of centralized regulation, with OSHA the logical agency to conduct such efforts. The danger, of course, is that OSHA, while attempting to help the worker

through regulatory interventions, may actually impose such substantial economic costs that consumers, shareholders, taxpayers, and even the protected workers per se, will suffer a net loss.191 This is particularly likely if, as has been too frequently the case with past OSHA procedures, the regulatory intervention does not substantially enhance the safety and health of workers, or if it imposes costs that are well out of proportion to the gains achieved.

A final word should be said about the major advantage of incentive systems relative to the standards approach that forms the backbone of OSHA's present efforts. Incentive systems avoid rigidities that are inevitable with direct regulation that prescribes particular means for promoting OSH. If a firm will be penalized for a poor OSH record, as it would be with a tax system or a workmen's compensation add on, the firm will manipulate all of the factors under its control in an attempt to enhance OSH levels; it will not concentrate on those that can be readily inspected. This flexibility may be of particular import in industries where there are attractive opportunities, either technological or organizational, to pursue cost-reducing OSH-promoting innovations.

The primary thrust of our recommendations is that OSHA should seek to channel its interventions to areas where it can be demonstrated to yield measurable benefits. This will require not only a reorientation of its standards-and-inspection system, but also a substantially improved capability to collect and process data, and disseminate information. Among these information-gathering activities, estimating the costs of meeting various standards should receive high priority. Health Versus Safety

OSHA has devoted an inappropriately large fraction of its efforts to the promotion of occupational safety as opposed to occupational health. This conclusion emerges from an examination of the justifications for Government intervention in the two areas, and from a review of the evidence on the magnitude of the two problems. 192 The Agency has been safety oriented from its inception. Its inspection force has been heavily weighted toward safety specialists as opposed to industrial hygienists, who could conduct health inspections. The overwhelming majority of OSHA standards relate to safety problems. Most significant health problems are not addressed by standards.

The situation is changing. Standards for other health risks, including lead, trichloroethylene, beryllium, sulfur dioxide, ammonia, toluene, inorganic arsenic, various ketones, and noise among others, are

101 The ultimate impact on workers of OSH regulation will depend on how the costs of compliance are distributed. Firms may reduce risk premiums or curtail employment, thus harming workers directly. Costs may be passed on in the form of higher prices, which will affect workers in their roles as consumers. Even if costs come out of profits, workers will be affected both as taxpayers, since lost revenues from the corporate income tax will have to be replaced by other taxes, and as shareholders of companies. Although individual workers own little equity, employee pension funds have significant holdings. P. F. Drucker. The Unseen Revolution: How Pension Fund Socialism Came to America (Harper & Row, New York, 1976), estimates that such funds will hold over one-half of all U.S. equity by 1985.

192 There is evidence that underreporting is a serious problem with regard to occupational health losses. See the speech of Dr. Morton Corn before the Manpower and Housing Subcommittee of the House Committee on Government Operations, May 12, 1976. He observes: "Taking this problem of underreporting into account, current estimates of the number of workers suffering harm from workplace exposure to toxic substances or harmful physical agents nevertheless range up to 100,000 deaths each year." Even if this estimate is overstated by a factor of five, the magnitude of the occupational health problem in the United States would appear to have been underestimated, at least by the public.

currently in various stages of the review process. OSHA is making a concerted effort to improve the management of the standards-development process and, in particular, to find some better way of dealing with the vast range of potentially toxic substances than simply examining them one at a time. In a major 3-year effort, OSHA will recruit and train compliance officers to deal with occupational health problems.

OSHA should be credited for focusing more strongly on problems of occupational health, where it clearly has a significant potential contribution to make. This is also an area where, as we have suggested earlier, the potential costs of misguided regulation are much higher. The social costs as well as the health-promoting benefits of OSHA's expanding health programs should be carefully monitored, by Congress, the Administration, and OSHA itself.

Standards

REFORM OF OSHA

The major steps that OSHA is undertaking to improve its present set of standards have already been described. Some of the most widely criticized standards, primarily those adopted uncritically from consensus organizations, have been deleted or revised significantly. Major efforts currently underway or recently completed, both within OSHA and by a Presidential task force, should lead to beneficial changes in a substantial portion of the remaining consensus standards. The stated goal of these efforts is to eliminate the unnecessary standards and to revise the others to make them easier to understand, with a greater emphasis on specifying the performance desired, rather than requiring particular methods of control. These efforts deserve praise, although final judgment must be reserved until the actual changes can be reviewed.

OSHA, partly in response to external prodding, has shown an increasing sensitivity to economic considerations in the setting of its standards. The inflationary impact statements, prepared in response to a recently extended Presidential order, have had the desirable effect of making OSHA weigh, or at least formally acknowledge, the costs of complying with the standards that it establishes. OSHA's announced intention of continuing these studies is most welcome, particularly if OSHA can develop an in-house capability to feed such information directly into the standards-setting process.

Many would argue that OSHA should not consider costs, except of the most extreme sort, in setting standards. Human life and health, it is argued, are priceless and should not be traded off against dollars. Indeed, efforts to make such trade-offs probably violate the spirit, and quite possibly the letter, of the OSHAct. We reply that while these trade-offs are often distasteful, they are also inevitable. Both as individuals and as a society, we constantly make implicit choices to undertake risks to life and limb in order to obtain other valued attributes. Resources used to promote OSH are not available for other purposes, including efforts to save lives or improve health in other areas, such as programs for highway safety or improved air quality. Ideally, each standard would be set on the basis of a careful analysis of the costs and benefits it generates. Unfortunately, analytic techniques to impute dollar values to such attributes as good health and greater longevity are neither well developed nor widely accepted

at present. It should be stressed, however, that whether difficult tradeoffs involving resources and health are dealt with explicitly and analytically, or are ignored, they are still made every time a decision is reached affecting human health. Where occupational health decisions are concerned, we believe that a stronger emphasis on analytic approaches is needed.

Given the difficulties, both analytic and political, of valuing lives and health, we believe that the most promising approach for setting standards is to employ cost-effectiveness analysis. For each standard proposed, several different levels should be considered, including the possibility of no standard at all. Dollar costs should be estimated as accurately as possible for each possible level. The benefits associated with each level should also be assessed, measured perhaps in such terms as the number of disabling injuries or illnesses prevented, not in dollars. In many cases, the available data will permit only the crudest estimates encompassing wide ranges of uncertainty. Still, we would argue, if the data available are too weak to make even crude estimates of the benefits, they also are too weak to establish standards following any procedure.

Once cost and effectiveness estimates are assembled, at least rough answers can be provided to the question: As a standard is tightened progressively, how much does it cost per additional life saved (or illness/injury prevented) to achieve the higher level of protection? 193 This procedure would not by any means determine the actual level chosen. The very process, however, would force OSHA to examine the consequences of its standards more closely and would also provide useful information for interested parties, including other executive agencies and the Congress. Perhaps more importantly, it would highlight inconsistencies in different areas; it might show, for example, that at current levels of stringency one standard costs $5 million at the margin per expected life saved, while another could be tightened at a cost of only $5,000 per expected life, thereby yielding 1,000 times the OSH gain for its cost impositions. In such a case, by loosening the first standard and tightening the second, it would be possible both to increase longevity and to free resources for other uses.

If costs are an important consideration in setting standards, the level of protection afforded will vary significantly across and even within industries. In general, the lower the cost of compliance, the more stringent the standard should be. For example, it is obviously more expensive for a metal stamping firm to come into compliance with OSHA noise standards than it is for an electronics firm to do so. OSHA should consider setting standards at different levels for differ

193 Typically, as a standard is tightened the cost of achieving a fixed increment of health protection rises, sometimes quite rapidly. Consider a proposed standard that will prevent 100 injuries at a cost of $200.000. If OSHA were adopting policies that implicitly valued injuries at $3.000, and if this level of standard were the only option, it would seem well justified. since it prevents an injury at an average cost of $2,000. But other levels may be feasible. Suppose that a slightly relaxed standard would cost only $150,000 and would prevent 95 injuries. In that case, the marginal cost of preventing the last five injuries is substantial. To be precise, it is ($200,000-$150,000)/100-95)= $10.000 per injury. If that $50,000 could be directed to more beneficial purposes elsewhere, including achieving more for the promotion of OSH, the slightly relaxed standard should be adopted.

The cost-effective setting of standards requires that the marginal cost of preventing an injury (or saving a life) by tightening a standard must be the same for all standards.