On May 23, 2000, the Occupational Safety and Health Administration (OSHA) published a notice in the Federal Register informing the public that despite eight years of analyzing the economic impact of its proposed Ergonomics Program rule, it had failed to include the costs of the program for state and local governments.1 Consequently, the broadest and most costly workplace regulation ever published will now cost even more than OSHA had originally estimated. Including these overlooked costs raises OSHA's estimate of the total cost of the rule by $497 million per year, or 11.7 percent, to $4.7 billion.2 Moreover, OSHA's estimate of the total cost of the proposed rule is at the low end when compared with forecasts prepared by other government agencies and the private sector.
OSHA defines ergonomics as the science of fitting the job to the worker. Its proposed ergonomics rule would require employers to eliminate or materially reduce hazards in the workplace that lead to injuries such as carpal tunnel syndrome, tendinitis, and back injuries. According to OSHA, each year 1.8 million workers experience work-related musculoskeletal disorders from overexertion or repetitive motion.
After first claiming in the ergonomics rule that "few, if any, of the affected employers are state, local, or tribal governments,"3 OSHA reversed itself in the May 23 notice and acknowledged that because of certain federal requirements, many states will have to implement the proposed rule at a substantial cost.
The Occupational Safety and Health Act, or the OSH Act (P.L. 91-596), allows states to set up and enforce their own safety and health programs provided they meet two federal mandates.4 First, any state that creates its own program (known as a "State-Plan" state) must publish regulations that are "at least as effective" as any federal OSHA regulation.5 Second, State-Plan states must cover state and local government workers who are not covered under the federal OSH Act.
Today, there are 23 State-Plan states that have their own safety and health programs consistent with these requirements.6 (See Table 1.) By federal law, these states will have to adopt an ergonomics regulation "at least as effective" as the federal rule that covers state and local government workers. Another five states have their own laws that automatically adopt OSHA rules for public employees. Most of the remaining 22 states have workplace safety and health laws that cover state and local government workers, but they do not automatically adopt federal standards. These states could adopt OSHA's ergonomics regulation, publish their own less burdensome rule, or develop voluntary guidelines.7
According to OSHA's May 23 notice, the proposed ergonomics rule will cost state and local governments in the State-Plan states $497 million per year. This estimate, however, is incomplete and based on questionable assumptions. For example, OSHA does not know how many state and local government establishments there are, or how the reporting requirements in the proposed rule would apply.8 OSHA's estimate also does not include the costs for the five states that have their own laws and automatically adopt OSHA regulations--Illinois, Maine, New Jersey, Rhode Island, and Wisconsin.
A more accurate cost estimate calculated by Heritage Foundation economists ranges from $886 million to $1.7 billion per year for the 28 states that automatically adopt OSHA rules (see Table 1).9 Many small public-sector entities such as towns, volunteer fire departments, and water districts may not be able to sustain the cost of the new rule without increasing taxes or reducing services. The cost for the other 22 states depends on the kind of regulations or guidelines they adopt. Some could adopt OSHA's proposed rule to cover state and local government workers, while others may choose to do nothing.
The impact of the proposed ergonomics rule on private- and public-sector employers is not limited to higher costs. Because the proposed rule is filled with undefined words and phrases, private- and public-sector employers will have a difficult time implementing and complying with the rule. Workplace changes required by the new rule could force both private- and public-sector managers to reopen collective bargaining agreements or face possible penalties for failure to take corrective action. The ergonomics rule also has the real potential to expand state workers' compensation systems, greatly increasing both the number of claims and the rate of fraud.
On May 24, 2000, the Appropriations Committee of the U.S. House of Representatives responded to these problems by adding language to the appropriations bill for the Departments of Labor, Education, and Health and Human Services that would prohibit OSHA from publishing a final ergonomics rule in fiscal year 2001. The Senate should consider following the House's lead.
Recent testimony before House and Senate committees and the latest OSHA notice strongly suggest that OSHA is rushing to publish a final rule without carefully considering all of the issues or fully accounting for all of the costs. OSHA should slow its development of the ergonomics rule, particularly given the dramatic and continuing decline in ergonomic-related injuries--a decrease of 25.7 percent between 1992 and 1998.10 Instead of issuing a vaguely written and costly mandatory regulation, OSHA should consider adopting voluntary guidelines for tailor-made workplace solutions.
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.
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).11 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.12 Some reports estimate that the actual total cost will be between $31.2 billion and $95.1 billion per year.13 A number of studies have found significant errors and questionable assumptions in OSHA's original estimate--some large and some small.14 And as noted above, even OSHA's latest Federal Register notice failed to include the states that automatically apply OSHA regulations to public employees.15
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.16 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).17 (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).18 (See Table 1.)
OSHA expects that the proposed rule will significantly increase the number of requests for state compliance assistance and consultation services.20 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.21 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.
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."22
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.23 One ergonomic expert who testified for OSHA in Secretary of Labor v. Dayton Tire characterized sitting with legs crossed as an awkward posture.24 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.25 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.26
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.27 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.28
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.29 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,30 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.31 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.32 Thirty-seven percent of doctors said their patients have at least sometimes asked them to deceive insurers.33 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.34 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."35 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.
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.36
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.37 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.
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.39 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.
OSHA initially estimated the total cost of the proposed ergonomics rule at $4.232 billion per year.40 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.41
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.42 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.43 Other studies have estimated the total cost of the proposed rule to range from $31.2 billion to $95.1 billion per year.44
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.45
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.46 OSHA's cost estimates by industry category are from Table V-2 of its "Preliminary Economic and Regulatory Analysis."47 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.48
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.49 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.
1. See Federal Register, Vol. 65, No. 100 (May 23, 2000), p. 33263. The notice also states that OSHA's economic analysis failed to account for the costs imposed on railroads and the United States Postal Service. For the proposed Ergonomics Program rule, see Federal Register, Vol. 64, No. 255 (November 23, 1999), p. 65768.
4. There are more than two federal requirements for a state to become a State-Plan state. These two are the most relevant for this discussion. For other requirements, see P.L. 91-596, Section 18, available at http://www.osha-slc.gov/OshAct_data/OSHACT.html#18.
7. The Inspector General for the U.S. Department of Labor has identified six of these states as having acceptable public-sector OSH legislation and programs. See U.S. Department of Labor, Office of Inspector General, Office of Audit, "Evaluating the Status of Occupational Safety and Health Coverage of State and Local Government Workers in Federal OSHA States," Report No. 05-00-001-10-001, February 9, 2000.
10. Bureau of Labor Statistics, "Lost-Worktime Injuries and Illnesses: Characteristics and Resulting Time Away from Work, 1998." This is the decline in the rate per 1,000 workers for sprains, strains, tears, carpal tunnel syndrome, and tendinitis.
12. This estimate also does not include the cost of the rule on railroads and the United States Postal Service. See Occupational Safety and Health Administration, "Preliminary Economic Analysis and Initial Regulatory Flexibility Analysis for the Proposed Ergonomics Program Standard," Chapter V, at http://www.osha-slc.gov/ergonomics-standard/tables/Chapter5.html.
13. See Employment Policy Foundation, "Critique of OSHA's Economic and Regulatory Flexibility Analysis of the Proposed Ergonomics Program Standard," February 2000, and Food Distributors International, "The Economics of Compliance with Proposed OSHA Ergonomics Program Standards," November 1999.
14. See Employment Policy Foundation, "Critique of OSHA's Economic and Regulatory Flexibility Analysis," and Susan Dudley and Hayden G. Bryan, "Public Interest Comment: The Occupational Safety and Health Administration's Proposed Ergonomics Program Standard," Mercatus Center Regulatory Studies Program, George Mason University, March 2000.
15. A review of state labor laws reveals that Illinois, Maine, New Jersey, Rhode Island, and Wisconsin automatically adopt OSHA regulations for public employees. These states are not included in OSHA's May 23 Federal Register notice.
19. These example estimates are based on the same methodology that is used to calculate the costs for the five states that automatically adopt OSHA rules. See Appendix A. Costs are not calculated for all 22 states because it is far less certain what type of ergonomics rule or guidelines they may adopt.
21. The Human Factors and Ergonomics Society reports having just 5,000 members. According to the Board of Certification in Professional Ergonomics, there are only 711 board-certified ergonomists in the United States.
26. Ibid., p. 65828. OSHA provides this example of how employers can design jobs to eliminate or reduce ergonomic hazards: "For example, [employers] may need anthropometric data to be able to design to the range of capabilities and limitations of employees." Webster's Ninth New Collegiate Dictionary defines "anthropometric" as the study of human body measurements.
28. Collective bargaining is the bilateral process whereby the terms and conditions of employment are negotiated between employee representatives and the employer. In the private sector, the National Labor Relations Act is the law that governs collective bargaining and determines unfair labor practices. In New York's state, county, and municipal government employment settings, the Taylor Law governs this process. Most other states have their own laws that govern the collective bargaining of public-sector employees.
30. Despite Section 4(b)(4) of the OSH Act, which bars OSHA from publishing regulations that "in any manner affect" state workers' compensation laws, the agency relies heavily on the 1980 D.C. Circuit Court decision in United Steelworkers of America v. Marshall (Lead) to justify the WRP in the proposed rule. In public comments on the proposed rule, the American Insurance Association et al. present a strong argument that the D.C. Circuit Court's decision is inconsistent with the breadth of the statutory language in the OSH Act. See Federal Register, Vol. 64, No. 255 (November 23, 1999), p. 65848, and the American Insurance Association's Internet site at http://www.aiadc.org/media/030200dcatt.htm?CiRestriction=ergonomics.
31. See Richard J. Butler, David L. Durbin, and Nurhan M. Helvacian, "Increasing Claims for Soft Tissue Injuries in Workers' Compensation: Cost Shifting and Moral Hazard," Journal of Risk and Uncertainty, Vol. 13, pp. 73-87. See also Sidney A. Shapiro, "Occupational Safety and Health Regulation," 1998, published in B. Bouckaert and G. De Geest, eds., Encyclopedia of Law and Economics (Ghent, Belgium: Edward Elgar and the University of Ghent, 1999), available on the Internet at http://allserv.rug.ac.be/~gdegeest/5540art.htm.
34. These studies were also cited by OSHA in its Preliminary Economic Analysis of the proposed rule. See Occupational Safety and Health Administration, "Preliminary Economic Analysis and Initial Regulatory Flexibility Analysis for the Proposed Ergonomics Program Standard," Chapter IV, at http://www.osha-slc.gov/ergonomics-standard/tables/Chapter4.html.
36. Western Governors' Association, "Resolution 99-032: OSHA's Proposed Ergonomics Program Standards," December 3, 1999, available at http://www.westgov.org/wga/policy/99/99032.htm.
42. Small Business Administration, "Analysis of OSHA's Data Underlying the Proposed Ergonomics Standard and Possible Alternatives Discussed by the SBREFA Panel 3/2/99-4/30/99," September 22, 1999, p. 47.
43. See Susan Dudley and Hayden G. Bryan, "Public Interest Comment: The Occupational Safety and Health Administration's Proposed Ergonomics Program Standard," Mercatus Center Regulatory Studies Program, George Mason University, March 2000.
44. See Employment Policy Foundation, "Critique of OSHA's Economic and Regulatory Flexibility Analysis of the Proposed Ergonomics Program Standard," February 2000, and Food Distributors International, "The Economics of Compliance with Proposed OSHA Ergonomics Program Standards," November 1999.
46. County Business Patterns data are available on the U.S. Bureau of Census Internet site at http://www.census.gov/epcd/cbp/view/cbpview.html.
47. See Occupational Safety and Health Administration, "Preliminary Economic Analysis and Initial Regulatory Flexibility Analysis for the Proposed Ergonomics Program Standard," Chapter V, Table V-2, at http://www.osha-slc.gov/ergonomics-standard/tables/tablev-2.pdf.
48. State and local government employment data for 1997 are available on the U.S. Bureau of Census Internet site at http://www.census.gov/govs/www/apes97sl.html.