Peter S. Barth

Workers' Compensation and the Prevention of Occupational Disease

One of the core goals of workers’ compensation insurance in the United States is to reduce the incidence of injuries and diseases arising from the workplace. The system seeks to accomplish this by using financial incentives both to reward those employers who operate safe and healthful establishments and to punish those with poor performance records. In a general sense, the method of experience rating is quite simple. When a business has a poor track record in terms of injuries and diseases, its workers’ compensation insurance premiums will be raised, thereby increasing the firm’s costs. This will tend to undermine the firm’s competitive position and could even force the firm to shut down. From a more positive perspective, the employer with an exemplary record derives competitive advantages, earning both greater profits and virtue as rewards. Economists as well as social activists appear to favor such experience rating. The former are attracted because of the efficiency that springs from assigning costs to their source. For them, proper resource allocation dictates that unsafe establishments sell their output at prices that reflect the full economic costs of producing them. Such costs would include the indemnity and medical payments of workers’ compensation. If the firm can no longer compete because of its high compensation costs, let it leave the industry if it cannot improve its record. Aside from economists, many others appear to support experience rating, apparently believing that some sort of justice is served by it. They perceive this as a punishment of reckless employers where few or no other sanctions exist. Does the workers’ compensation system actually deliver on its goal of encouraging health and safety at the workplace? If not, could the system be made to work so as to assure the achievement of this goal? Without an unequivocal response to the first question, answering the second one is especially speculative. Regrettably, even though workers’ compensation is more than 75 years old, at least in several of the states, the evidence is only shaky that the system does induce employers to operate as the theory suggests. If the data do show such a relation, the link appears to be weak. Yet the argument here is not to suggest that workers’ compensation insurance is irrelevant as an inducement for employers to behave. Instead, the point is that although injuries due to accidents represent the best possible case for loss control measures by employers, occupational diseases, especially the long latent ones, offer no such payoffs for businesses. The following represent several reasons why the compensation system cannot be counted upon to deliver a healthful workplace: 1. The problem in the case of certain diseases is especially great because of the long time lag between the exposure and the first manifestation of illness. In a society in which business is often accused of thinking only for the short run-and

Book Review: Labor Market: The Labor Supply for Lower-Level OccupationsThe Labor Supply for Lower-Level Occupations. By WoolHarold. New York: Praeger Publishers, 1976. xix, 383 pp.

Economists, manpower specialists, sociologists, and educational planners owe a debt to Harold Wool for his painstaking and persuasive look into the future. He has mustered a variety of arguments that suggest important changes are ahead in the next decade in the character of the labor market. Although he merely speculates about how the market will adjust to these changes, he argues persuasively that some type of adaptation will be necessary. The core of Wools argument is that the supply of workers available for low-status work is drying up and that by the mid-1980s there will be shortages in this type of manpower. While such occupations may be menial and frequently unpleasant, they are by no means unimportant to the operation of our economy. The absence of persons willing to take these jobs can therefore spell problems for both employers and consumers. One of Wools major objectives is to demonstrate why such shortfalls in the labor market will occur. While the case is not entirely convincing, it is strong enough to warrant our attention. A highly controversial argument is developed in the first chapter wherein Wool examines alternative, qualitative occupational rankings made by sociologists, including the widely used Duncan scale. Finding all of them lacking, he prepares his own ranking, basing it on the percentage of white workers with 12 or more years of education in the age group 25-34, as computed for each of the 57 occupations or occupational clusters from the 1960 census public use sample. The index is then split into five groupings. While some apparent anomalies appear (electricians, machinists, and carpenters, for example, are in a lower group than are telephone operators, cashiers, or bookkeepers), Wools rank ordering is closely enough correlated with those of others to provide him confidence in his groupings. Chapter 2 all too briefly surveys the changing patterns of demand and the sources of manpower for Wools lower status jobs over the long run. There is a very terse history of American immigration policy, a section on the long-term movement away from the farms, and one on the role of youth in filling lower-level jobs. In Chapter 3, by far the largest chapter in the volume, Wool uses the 1960 and 1970 censuses to explore trends in occupational labor supply, many of which have been reported previously in other frameworks. In this decade the labor force was swelled by the entry of youth, employment expanded most substantially in white-collar and service occupations, and a substantial improvement occurred in the occupational status of nonwhite workers, particularly among bettereducated youth. Wool finds that an increasing share of the low-status jobs were filled over the decade by foreign-born persons, especially Mexicans and other Latin Americans. Chapters 4 and 5 will likely be somewhat difficult for many economists to accept. In the former, there is a very brief attempt to model the labor market in order to determine how price and quantity interact to clear the market. The very stable structure of wages seems to imply to Wool that the market is not performing efficiently. But there are serious specification problems in the econometrics here and the reader should tread with great care. Wool seeks, for example, to determine if demand changes (measured by employment changes) explain the percentage change in wages over the decade. He argues that employment changes and wage movements are largely induced by demand changes since economists have long argued that supply is quite inelastic in the short run. (I quarrel with his notion that a decade qualifies as the short run.) Thus, when he notes that farm workers had very large percentage increases in earnings over the decade -and a large drop in employment -he cannot argue that the labor market has failed. Indeed, even after these increases, farmers and farm laborers still had very low absolute earnings relative to other occupations and, consequently, continued the long-run process of moving into the higher earnings sectors. Chapter 5 contains projections of labor supply and demand to 1985 based on simple arithmetic extrapolation of the data from 1960 and 1970. The chapter is unimaginative, a reflection of the state of the black art of manpower forecasting. Here, too, Wool projects the drying up of farm to city migration, foresees reduced Hispanic immigration into the United States, and a decline in the numbers of youth entering the labor market. Chapter 6 presents the results of four case studies of the labor market (household maids, construction laborers, apparel operatives, and hospital attendants) to show how the labor market accommodates to alterations in labor supply. The chapter is an interesting one but