STATE IMPLEMENTATION PROBLEMS AND
COSTS
OSHA's recent admission that it failed to
take into consideration the impact of its ergonomics rule on a
major sector of the workforce suggests that the proposal will have
serious implementation problems and will impose significant costs
on state and local governments.
BILLION DOLLAR IMPACT
Prior to acknowledging the omission of the
rule's impact on state and local governments, OSHA estimated the
cost of the ergonomics rule to be $4.2 billion per year. Heritage's
analysis of the data, however, suggests that a more accurate cost
estimate ranges from $5.7 billion to $10.8 billion per year without
the cost of state and local governments, and $6.6 billion to $12.5
billion per year if public-sector workers are included (see Table
1). In
fact, even without accounting for the cost to state and local
governments, OSHA estimates the first-year cost of the proposed
rule to be at least $9.2 billion. Some reports estimate that
the actual total cost will be between $31.2 billion and $95.1
billion per year. A number of studies have
found significant errors and questionable assumptions in OSHA's
original estimate--some large and some small. And as noted
above, even OSHA's latest Federal Register notice failed to include
the states that automatically apply OSHA regulations to public
employees.
Heritage economists estimate that the
total public-sector cost of the proposed ergonomics rule for state
and local governments will range from $886 million to $1.7 billion
per year. Moreover, these estimates do not
include the potential cost of ergonomics regulations published in
the 22 states that do not automatically adopt OSHA standards. Nor
do they include the increase in costs from providing additional
state consultation services to employers struggling to implement
the new rule.
-
The five State-Plan states with the
highest annual cost to the public sector are California ($165.7
million to $312.2 million), New York ($112.2 million to $211.4
million), Michigan ($53.7 million to $101.1 million), North
Carolina ($43.4 million to $81.8 million), and Virginia ($37.6
million to $70.8 million). (See Table 1.)
-
In states that automatically adopt OSHA
regulations for the public sector, the highest costs for
implementation are for Illinois ($65.4 million to $123.1 million)
and New Jersey ($43.3 million to $81.7 million). (See Table
1.)
- The cost for the other 22 states depends
on what kind of regulation or guidelines they develop. Estimates
for Delaware range from $4.2 million to $8 million per year, and
estimates for Texas range from $111.2 to $209.5 million per year.
OSHA
expects that the proposed rule will significantly increase the
number of requests for state compliance assistance and consultation
services. The broad coverage of the
proposed rule (5.9 million establishments) and the limited number
of professionally accredited ergonomists in the United States will
force employers to turn to state compliance services. The OSHA
notice and its proposed rule, however, fail to mention the increase
in state funding that will be needed to pay for compliance
assistance, enforcement, or litigation associated with implementing
the new rule. Through regulation, the federal government is
effectively creating a large unfunded mandate on the states.
VAGUE DEFINITIONS
State and local government managers and
administrators in State-Plan states will be faced with the same
problem private-sector employers will face--an overly vague rule
with undefined terms that leaves them uncertain how to comply. For
example, the OSHA rule repeatedly uses terms like "significant
amount of the employee's time" and "core element of the job"
without defining what makes an activity a "core element" of a job
or specifying how prolonged a period of time must be to qualify as
"significant."
Moreover, the proposed rule actually
considers standing or sitting in place for a prolonged period of
time to be an ergonomic hazard that must be eliminated. One
ergonomic expert who testified for OSHA in Secretary of Labor v.
Dayton Tire characterized sitting with legs crossed as an awkward
posture.
OSHA leaves employers to guess how much force constitutes "forceful
lifting," and actually lists using power tools as both an ergonomic
hazard and a hazard-control option. OSHA even suggests that
employers measure their workers--similar to how a tailor would fit
a suit--so that they can properly fit their jobs to their
employees.
COLLISIONS WITH COLLECTIVE BARGAINING
AGREEMENTS
OSHA
is also proposing that public- and private-sector employers analyze
"all jobs involving the same physical work activities and
conditions" as those where an ergonomic injury has occurred,
regardless of whether those jobs have the same job title. In
bureaucratic state and local government agencies, an ergonomic
injury at one office desk job will likely trigger ergonomic
analysis, training, and hazard control for every office desk job in
that agency.
Moreover, many state public-sector
workplaces are subject to civil service rules and collective
bargaining agreements (44.2 percent of State-Plan state government
workers are covered by a union contract) that often do not allow
government managers to redesign jobs unilaterally. Many of the job
changes that the ergonomics rule would require are considered
mandatory subjects of collective bargaining. An employer's
implementation of those changes could constitute unfair labor
practices under many state labor laws, such as New York's Taylor
Law.
EXPANSION OF STATE WORKERS' COMPENSATION
BENEFITS
The
proposed ergonomics rule contains a work restriction protection
(WRP) provision that will have sweeping effects on state workers'
compensation systems. OSHA candidly states that the purpose of the
WRP is to remedy what the agency perceives as shortcomings in state
workers' compensation systems. The WRP requires
employers--upon the recommendation of a health care
professional--to remove injured employees from the workplace and
continue to pay them 90 percent of their after-tax earnings and
full benefits.
State workers' compensation programs,
however, usually replace 66 percent of an injured worker's earnings
subject to a maximum benefit cap based upon the state average
weekly wage. The lack of a benefit cap for the WRP will result in
high-wage workers receiving far greater benefits for an ergonomic
injury than they would receive under workers' compensation. In
turn, this creates a financial incentive to classify injuries as
the result of some ergonomic hazard.
Setting aside the legal issue of whether
or not the WRP provision violates Section 4(b)(4) of the OSH Act, the
ergonomics rule will have a significant economic impact on state
workers' compensation systems due to increases in both fraud and
benefit claims. Despite OSHA's attempt to minimize the problem of
fraud in workers' compensation claims, the likelihood of both
employer and employee fraud will increase whenever the costs and
benefits of the workers' compensation system increase.
One
study on soft-tissue injuries in the workplace has attributed most
of the increase in workers compensation claims in the 1980s to
"moral hazard" responses by employees and physicians. In other
words, most of the increase in soft-tissue injury claims was
fraudulent. A recent national survey of doctors published in the
Journal of the American Medical Association found that more than
one-third of doctors have admitted to deceiving insurance companies
by exaggerating the severity of an illness and reporting
nonexistent symptoms to secure insurance coverage.
Thirty-seven percent of doctors said their patients have at least
sometimes asked them to deceive insurers. Fraudulent claims may increase
because higher benefits induce workers to manipulate the evidence
and symptoms of injuries at critical margins.
Even
in the absence of fraud, a series of studies by Alan B. Krueger,
former Chief Economist at the U.S. Department of Labor, have found
that increases in workers' compensation benefits increase both the
number of accepted worker compensation claims and the duration of
these claims. In fact, OSHA states in its
Preliminary Economic Analysis that "an increase in the number of
[ergonomic injuries] reported and the number of claims filed is
precisely the effect that OSHA hopes to achieve with the WRP
provision of the standard." The large number of
ergonomic-like injuries that are not caused by work but may be
aggravated at work will drive the increase in worker compensation
claims. Under the proposed rule, injuries that occur away from work
can be reported as work-related and may be subject to workers'
compensation benefits.
OTHER CONFLICTS WITH WORKERS'
COMPENSATION
When
a claim for a single injury is filed in both the state workers'
compensation system and the proposed ergonomic management system, a
number of irremediable conflicts arise. The state's workers'
compensation provisions for health care providers and medical cost
containment are overridden. The due process protections for both
workers and employers provided under workers' compensation are
denied. Workers have no way to dispute the decisions of employers
or the health care provider chosen by the employer. Furthermore,
the proposed rule's restrictions on the health care provider's
report deny the employer critical information needed for
administering the claim under workers' compensation. Moreover,
there is no mechanism for determining benefits if the worker has
more than one job.
These unintended conflicts demonstrate
OSHA's failure to fully consider the practical implications of its
proposed rule on state workers' compensation programs. It also
underscores the need for further discussions with experts from
these programs before OSHA publishes the final rule. In response to
these concerns, the 18 governors in the Western Governors'
Association unanimously passed a resolution in December 1999 that
calls on OSHA to ensure that its proposed ergonomics rule does not
preempt state workers' compensation laws.
WHAT STATES SHOULD DO
OSHA's ergonomics rule is a significant
unfunded regulatory mandate on the states. The May 23, 2000,
Federal Register notice informed State-Plan state governors and
legislatures that the proposed ergonomics program rule would cost
states at least $886 million per year. Yet it provided only a
30-day public comment period that ends on June 22, 2000, and a
one-day public hearing to be held in Washington, D.C., on July 7,
2000.
Governors and state legislators, however,
have opportunities to address this issue:
- The governors could ask OSHA and the White
House Office of Management and Budget (OMB) to extend the comment
period to 60 or 90 days in order to allow them adequate time to
review the cost estimates and develop their written comments.
- States can and should take full advantage
of OSHA's public comment process to educate OSHA on the compliance
costs and other problems posed by the proposed rule.
- Under the Paperwork Reduction Act, states
have the right to comment on the reporting and recordkeeping
burdens imposed by a proposed rule. OSHA originally submitted a
paperwork package to OMB for review on November 22, 1999. On
January 21, 2000, OMB issued a notice of action that did not
approve the reporting and recordkeeping burdens in the proposed
rule. States can comment on the paperwork burdens in the proposed
rule during the new public comment period. Any comments should be
addressed to both OMB and OSHA.
- Finally, governors and state legislators
can contact their representatives in Congress and ask them to
introduce or sponsor a joint resolution of disapproval under the
Congressional Review Act (P.L. 104-121). The resolution would stop
OSHA's rulemaking and send the ergonomics rule back to OSHA.
CONCLUSION
OSHA's proposed ergonomics program rule is
the broadest and most costly workplace regulation ever published.
Despite OSHA's claim that the new rule will have little or no
effect on the ability of state and local governments to deliver
services, the public-sector cost of the proposed rule for just 28
states ranges from $886 million to $1.7 billion per year.
Public-sector employers will have a difficult time complying with
the vague and undefined terms in the rule, and implementation will
increase the utilization of state consultation programs. Benefit
claims for state workers' compensation systems will increase, as
will the likelihood of fraud. State civil service and labor laws
could impede the implementation of workplace changes and trigger
the reopening of collective bargaining agreements.
OSHA
should delay its rush to judgment on issuing its ergonomics rule
until it adequately addresses these concerns and until state and
local officials have commented on the proposal. Moreover, given the
dramatic and continuing decline in ergonomic-related injuries, OSHA
should reconsider adopting guidelines for voluntary tailor-made
workplace solutions.
D. Mark Wilson is a former Research Fellow
in the Thomas A. Roe Institute for Economic Policy Studies at The
Heritage Foundation.
Appendix A:
Methodology
OSHA
initially estimated the total cost of the proposed ergonomics rule
at $4.232 billion per year. On May 23, 2000, OSHA
published additional estimates for state and local governments
($497 million), railroads ($9 million), and the United States
Postal Service ($82 million), for a new total cost of $4.820
billion per year.
On
September 22, 1999, the Small Business Administration published an
analysis of the proposed ergonomics rule which concluded that the
costs of the regulation could be "from 2.5 to 15 times higher than
those estimated by OSHA," for a total cost range of $7.1 billion to
$42.4 billion per year. In its public comments on
the proposed rule, the Mercatus Center concluded that the total
cost of the regulation could be 1.4 to 2.6 times higher than OSHA's
most recent estimate, or $5.8 billion to $11 billion per
year.
Other studies have estimated the total cost of the proposed rule to
range from $31.2 billion to $95.1 billion per year.
This
report uses the conservative adjustment factors of 1.38 to 2.6
applied to OSHA's cost estimates to calculate the low- and
high-cost estimates in Table 1. These adjustment factors are based
on an analysis of the proposed rule by the Mercatus Center and were
chosen because they rely on OSHA's methodology while making
transparent, careful, and conservative modifications in OSHA's
assumptions. Even these adjustment factors are likely to understate
true social costs, particularly the costs associated with the job
control and worker restriction program elements of the proposed
ergonomics rule.
Private-sector cost estimates for each
state were calculated by multiplying OSHA's total cost estimate for
each major industry category by each state's share of that major
industry's employment. Data on industry employment by state are
from the U.S. Bureau of the Census 1997 County Business Patterns
Survey.
OSHA's cost estimates by industry category are from Table V-2 of
its "Preliminary Economic and Regulatory Analysis." OSHA's detailed
industry cost data were summed to major industry levels for
agricultural services, oil and gas services, wholesale trade, and
the finance, insurance, and real estate industries. Detailed
industry data for the remaining major industries--transportation
and public utilities, retail trade, and services--were summed,
excluding the six industries with the highest costs: trucking and
courier services, department stores, grocery stores, eating and
drinking places, nursing and personal care services, and hospitals.
Data on these six industries represent 28.3 percent of OSHA's total
cost and were calculated separately for each state. The major
industry data and the six detailed industries data were then summed
for each state. The adjustment factors (1.38 and 2.6) were
multiplied by those sums to calculate the low- and high-cost
private-sector estimates.
OSHA's cost estimates for hospitals and
liquor stores contain both public- and private-sector employees.
OSHA's cost for these two industries was split by multiplying them
by the percentage of hospital and liquor store employees that are
state and local government workers and the percentage that are
private-sector employees. This allows for the correct allocation of
the cost of these two industries to the private and public sectors.
Data on state and local government workers for 1997 were obtained
from the U.S. Bureau of the Census.
Public-sector cost estimates for each
State-Plan state were calculated by multiplying OSHA's total cost
estimate for state and local governments by each State-Plan state's
share of state and local government employment. Data on state and
local government workers for 1997 were obtained from the Census
Bureau.
OSHA's total cost estimate for state and local governments was
increased by the costs for State-Plan state hospital and state
liquor stores that originally were in OSHA's private-sector cost
estimates. The data for each State-Plan state were then multiplied
by the adjustment factors (1.38 and 2.6) to calculate the low- and
high-cost public-sector estimates.
Public-sector cost estimates for the five
states that automatically adopt OSHA regulations were calculated by
multiplying OSHA's average cost estimate per worker for State-Plan
states by the total public-sector employment. The data for these
five states were then multiplied by the adjustment factors (1.38
and 2.6) to calculate the low- and high-cost public-sector
estimates.
Public-sector cost estimates for the 22
states that do not automatically adopt OSHA regulations were not
calculated because it is far less certain what type of ergonomics
rules or guidelines they may adopt. These states could adopt OSHA's
ergonomics regulations, publish their own less burdensome rules, or
develop voluntary guidelines. The example estimates for Delaware
and Texas are based on the same methodology that is used to
calculate the costs for the five states that automatically adopt
OSHA rules and are provided to illustrate the range of potential
costs for these states.