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MINISTRY OF SOCIAL AFFAIRS AND HEALTH

VIEWS: 21 PAGES: 5

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									               The use of the economic approach in OSH policy and practice
                       Lars-Mikael Bjurström, Ministerial Adviser

Ministry of Social Affairs and Health, Finland, Department for Occupational Safety and Health




Introduction

According to economic theory, individuals, households and enterprises and other organisations
try to attain well-being, and they are expected to act in a sensible way for reaching this goal.
Thus, economic thinking is supposed to direct our decisions and behaviour concerning
occupational health and safety, too.

The discussion we have had in most countries lately seems to stress that investments made in
order to improve working conditions are profitable not only to the workers and society but also
to the enterprises. This has been widely confirmed by research and case studies.

Thus, there should be strong incentives to improve working conditions on all different levels.
However, reality is not that simple, of course. Lack of knowledge and information about costs
and benefits is a general factor, which determines to what extent theory and practice meet.

Economic aspects connected with the improvement of working conditions, and OSH policy in
general, seem to become more and more important according to national strategies and
international programmes. This is confirmed in the European Community Strategies too.

In Finland, starting in the beginning of the 1990´s and fore more than a decade, the responsible
Ministry and the OSH administration tried systematically to develop and use the economic
approach on OSH policy level as well on the practical level. In my opinion, we should continue
to develop the use of economics as part of the policy in order to motivate improvements and
also to reach better understanding of problems and behaviour. Economic assessment and
thinking is also a part of making choices between different social goals.

The viewpoint of national economy

One important aim of society and a part of the OSH policy is to reduce the costs incurred to
national economy by poor working environments. According to a calculation made at the
Finnish Ministry of Social Affairs and Health, the costs of work-related diseases and
occupational accidents were nearly 3 billion euros in 2000, which was somewhat more than 2%
of GNP. Almost half of the losses were caused by reduced production input resulting from
disability. The average cost of an accident causing at least 3 days of absence was 6 900 euros.

Such “Cost of illness” calculations have been worked out in other countries, too, showing
losses between 1 and 4% of GNP, the variation depending mainly on different approaches and
calculation methods. However, I believe that 4% of GNP would be an overestimation. This kind
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of calculations show the potential savings, which would have been created in the national
economy if there had not been any work-related diseases or accidents. It shows that there are a
lot of savings to gain by improving working conditions. It also helps us to proportion the
importance of working conditions to other features of society. The calculation also gives us a
practical tool for assessing the significance of the different sectors of OSH.

However, the calculation does not answer the question if the inputs have been adequate from
the viewpoint of national economy or well-being. To answer that question we would need
information about the inputs and benefits (decrease of losses). Besides measures by the
occupational health services, research, training and activities by the authorities the inputs would
also include all investments for improving the working environment. OSH investments cannot
easily be separated from other investments in this kind of calculations. Thus, as we know, it is
very difficult to make good cost-benefit analyses in connection with preparing regulations, and
their quality has indeed been varying. However, analyses are an important tool, which tends to
raise the level of legislative preparation work.

A few years ago the ILO published a paper dealing with OSH and productivity emphasising the
positive correlation of the two factors or aspects. The paper includes a figure showing the
position of different countries regarding their competitiveness and number of fatal accidents.
There is a strong correlation: good competitiveness – low accident rate. Probably the rank of
the countries would be much the same using other indicators of well-being or success.
Explaining causality is not easy and perhaps not important. However, this kind of macro-studies
is welcomed in order to improve the debate about the role and importance of OSH.

The viewpoint of corporate economy

Social-economic calculations may well remain on a rather theoretical level, and one cannot
expect companies and workplaces to act in an optimal way with regard to national economy. I
believe that the business economic viewpoint, which is based on the circumstances of each
company, may be one of the most important incentives for the development of working
conditions today and in the future.

When developing work environment economics at the Ministry in charge of OSH in Finland,
we have tried to study the economic importance of working conditions in companies. An input-
output approach corresponding to the costs and benefits of safety and health measures has been
a natural and useful starting point and basic model for our analyses.

In order to find out the ratio between the inputs and outputs of working conditions, we need
analysing and calculation models. These can be models for investment calculations, separate
cost or follow-up calculations on occupational safety, or personnel-economic calculations.
Usually, companies follow their costs and benefits associated with working conditions quite
occasionally. It is obvious that the economic importance of working conditions is usually
underestimated, which is a result of inadequate monitoring or internal audit.

A large project carried out by the Finnish occupational safety and health administration, in co-
operation with the social partners (the Project on Working Environment Economics), sought to
present different kinds of models for analysis and calculation to fulfil the needs of enterprises.
Studies about the importance of the different aspects of the working conditions were carried out
too. The project produced knowledge of the following subjects (the results have also been
published in English):
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- workers' well-being and productivity
- working environment in the service sector - model for profitability assessment
- costs of sickness absenteeism
- costs of accidents
- costs of disability pensions and staff turnover
- work climate and customer service
- working environment and productivity in industry
- human resource reporting.

Typical additional costs due to shortcomings in working conditions are the costs of accidents
and the costs of absenteeism. The costs of an accident vary of course very much depending on
severity and consequences. When calculating accident costs it is important to be aware of the
indirect costs and possible disturbances to production. Even if it is important that companies
are interested in the additional costs of absenteeism and occupational accidents, it is probably
more important to look at all the different aspects of working conditions and study their impact
on productivity and profitability as a whole. In Finnish industry the average sickness leave rate
has been a little above 6% of the total working hours (around 4% for the whole workforce),
with 0,5% caused by occupational accidents. The major part of absenteeism due to sickness is
not considered as work-related.

Ergonomics and economics are closely related, even if we understand ergonomics in a
traditional, narrow way. The improvement of the productivity of work – one of the main goals
in our society – is and has always been very much linked to job design. The man-machine
analysis has always been an important part of engineering. On the other hand, a lot of diseases
and other disadvantages have resulted from awkward positions and movements of the body.
The economic importance of good ergonomics has been verified by several case studies.

One of the surveys carried out as a part of our development work dealt with the economic
importance of working conditions within SMEs. The survey was based on observations and
interviews in industrial companies and it focused on the productivity of work. According to the
survey, physical working conditions are important to productivity as some other basic
requirements. However, high productivity and profitability seem to be based rather on social
and psychic factors. This conclusion is very much in line with what has been said in modern
literature dealing with management.

Not all investments in the working environment are financially profitable, and they do not have
to be. Often measures must be taken irrespective of profitability in order to fulfil the law or for
ethical or moral reasons, and the necessary inputs are part of the production costs.

The financial impact of OSH measures depends on several factors, such as the status of the
company, the problem in question, the time span and the company's proficiency. Therefore,
there is reason to avoid generalisation about the profitability of OSH. However, it is probably
true that the wider concept of working environment we use, the more certain we can be that
investments in the working environment can be very profitable - remembering that profitability
depends on how improvements are carried out. If we treat OSH issues in a rational way as part
of the main activities and production, they can be managed in a profitable way. Safety and
health issues handled separately, without a holistic approach, will probably result in additional
costs and non-profitability.
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Economic approach as a tool for the OSH administration

An economic approach to occupational safety and health at workplaces raises questions and has
consequences for the administration and the OSH inspectorates. It is a great challenge to the
OSH administration to develop and introduce methods based on an economic approach. Still, it
can be an important means to motivate workplaces and find the most effective actions for
improving working conditions and well-being.

According to the OSH strategy of the Finnish OSH administration the central objective is to
maintain and promote working ability and functional capacity and to prevent accidents and
occupational diseases. The main idea of the strategy is to support spontaneous actions at work
places and to develop OSH operations on the basis of the needs and expectations of the clients.
Two concrete objectives related to working environment economics have been set:

 …”the OSH administration investigates the economic impact of working conditions and
develops financial incentives for improving the working environment”.

…”the OSH administration gives the employer guidance and advice on how to carry out the
necessary measures in an efficient and economical manner”.

Economic incentives are in this context often defined as subsidies, penalties or fines, and as
incentives in social insurance schemes. In the Finnish strategy the term economic incentive is
mainly used in the meaning of knowledge about the economic impact and how to use this
knowledge. A project was carried out in the late 90s in order to support the OSH inspectorates
and inspectors in the supervision work by using the economic approach. A memorandum
including principles and guidelines for the utilisation of economic thinking in inspection was
also published in English.

Conclusions

The concept of working environment has been extended during the last few decades and
matters related to it have approached the different sectors of management. Broad and holistic
concepts make the economic approach important, and safety and health matters become a
natural part of production. Good working conditions are a very important competitive factor in
the world of globalisation. However, short-term economic thinking is not very favourable from
the health and safety point of view. I believe that the title of the new EU OSH strategy -
“Improving quality and productivity at work” - is a strong message showing the direction of the
modern OSH policy.



Literature:
Ahonen, G., Bjurström, L-M. & Hussi, T. 2001. Työkykyä ylläpitävän toiminnan taloudelliset
vaikutukset (The Economic Effectiveness of Work Ability Promotion). Työkyvyn ylläpidon
tutkimus ja arviointi, Raportti 3. Sosiaali- ja terveysministeriö, Kansaneläkelaitos,
Työterveyslaitos, Helsinki.

Bjurström, L-M. 1993. Muuttaako taloudellinen näkökulma työympäristöpolitiikan ja
käytännön työsuojelun sisältöä? (English summary: ”Will economic aspects alter the content of
working environment policy and labour protection?”). Ministry of Labour. Finnish Labour
Review 4/1993, Helsinki.
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Bjurström, L-M. 1998. Small-scale enterprises and economics of the work environment.
Proceedings of the International Symposium ”From Protection to Promotion”. Finnish Institute
of Occupational Health, Helsinki.

Bjurström, L-M. 2000. Economics of the working environment and OSH supervision – an
economic incentive and a basis for cooperation, European Conference on Safety in the Modern
Society, Finnish, Institute of Occupational Health, Helsinki.

Bjurström, L-M. 2003. Economics and ergonomics. Mind and Body in a Technological World,
35th annual conference of Nordic Ergonomics Society, Reykjavik

Commission of the European Communities 2002. Adapting to change in work and society: a
new Community strategy on health and safety at work 2002-2006. 11.03.2002 COM(2002)118
final, Brussels.

Commission of the European Communities 2007. Improving quality and productivity at work:
Community Strategy 2007-2012 on safety and health at work. 21.2.2007 COM(2007) 62 final,
Brussels

Council of the European Union 2002. Council Resolution of 3 June 2002 on a new Community
strategy on health and safety at work (2002-2006). C 161/1-4. Official Journal of the European
Communities 5.7.2002.

Dorman, P. 2000. Economics of Safety, Health and Well-Being at Work: An Overview, Geneva
May 2000, ILO Safe Work web site.

European Agency for Safety and Health at Work 1998. Economic Impact of Occupational
Safety and Health in the Member States of the European Union, Bilbao.

ILO 2006. Occupational safety and health: Synergies between security and productivity.
Committee on Employment and Social Policy. Geneva

Ministry of Social Affairs and Health1997. Economics of the Working Environment, Models
developed by Finnish authorities, Tampere.

Ministry of Social Affairs and Health 1999. The economic viewpoint in occupational safety and
health supervision - Memorandum. International Publications 1999:5, Tampere.

Ministry of Social Affairs and Health 1999. Occupational Safety and Health Strategy of the
Ministry of Social Affairs and Health. Publications 1999:11, Tampere.

Ministry of Social Affairs and Health 2005. Occupational Safety and Health Strategy, Follow-
up report 2004. Reports 2005:13, Helsinki

Ministry of Social Affairs and Health 2008. Occupational Safety and Health Strategy, Follow
up Report 1998-2007. http://www.stm.fi/en/publications/publication/_julkaisu/1373893#en

Scoreboard 2005. Working Group on European Strategy on Health and Safety at Work.
Arbejdstilsynet (the Danish Working Environment Authority), Copenhagen

								
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