Recessions are bad for workplace safety

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Abstract

Workplace accidents are an important economic phenomenon. Yet, the pro-cyclical fluctuations in workplace accidents are not well understood. They could be related to fluctuations in effort and working hours, but workplace accidents may also be affected by reporting behavior. Our paper uses unique data on workplace accidents from an Austrian matched worker-firm dataset to study in detail how economic incentives affect workplace accidents. We find that workers who reported an accident in a particular period of time are more likely to be fired later on. And, we find support for the idea that recessions influence the reporting of moderate workplace accidents: if workers think the probability of dismissals at the firm level is high, they are less likely to report a moderate workplace accident.

Highlights

► Workplace accidents are an important economic phenomenon, but cyclical fluctuations in workplace accidents are not well-understood. ► We use unique and high-quality data on workplace accidents in Austria to study in detail how economic incentives affect workplace accidents. ► We find that workers who reported an accident in a particular period of time are more likely to be fired later on. ► We also find support for the idea that recessions lead to workers underreporting of moderate workplace accidents. ► To the extent that this leads to firms under-investing in workplace safety, recessions are bad for workplace safety.

Introduction

Many workers face the risk of being involved in a workplace accident.1 For instance, in the EU-15 in 2004 there were around 4 million occupational accidents leading to more than 3 days absence from work, which is equivalent to an accident rate of 3.2%. The total number of accidents, including those which did not involve absence from work amounted to 6.4 million, equivalent to an accident rate of 5.3%.2 The incidence of fatal accidents was 3.8 per 100,000 workers. Finally, annually around 140 million working days are lost due to non-fatal accidents. The accidents at work are estimated to cause annually costs of 55 billion Euros in EU-15, mostly due to lost working time.

Workplace accidents seem to be related to workplace safety, but cyclical fluctuations in workplace accidents are puzzling from an economic point of view. There are only few studies that address this question. Kossoris (1938) is a very early reference to the pro-cyclical pattern in accident rates. Fairris (1998) shows that in the U.S., manufacturing injury rates are pro-cyclical. Shea (1990) suggests that variables such as overtime, hiring and firing rates, the share of non-production workers, and the investment-to-capital ratio may affect the accident rate over the business cycle. If firms require more hours worked from employees in booms and less in recessions, then hours worked will be pro-cyclical and the accident rate (per worker) positively correlated with aggregate fluctuations in the economy.

It seems obvious that workplace accidents are pro-cyclical because effort and hours of work are negatively related to unemployment and high effort makes accidents more likely.3 However, Boone and van Ours (2006) provide an alternative explanation related to reporting behavior. Their idea is that in times of high unemployment workers are reluctant to report workplace accidents because they fear – correctly or incorrectly – that employers will hold this against them.4 If they are fired in a recession, it will take them a long time to find a new job. Hence the worker prefers not to report an accident. One way to distinguish between the two explanations is to study cyclical fluctuations in fatal workplace accidents. If cycles in workplace safety drive the cycles in workplace accidents this should also be the case for fatal accidents, which are always reported. If reporting behavior of workers is relevant then fatal accidents should not be affected by the unemployment rate or changes in the unemployment rate. Using annual aggregate data from OECD countries Boone and van Ours (2006) find that non-fatal workplace accidents are inversely related to the unemployment rate, while fatal accident rates do not seem to be related to labor market conditions, which suggests that workplace accidents are indeed influenced by reporting behavior.

Our paper studies cyclical fluctuations in workplace accidents using micro data. We have information on workplace accidents of male blue-collar workers from Austrian matched worker-firm data over the period 2000–2006. Our unique data allow us to investigate in great detail how economic incentives influence reporting of workplace accidents. We are able to provide direct tests of the relationships between workplace accidents and firing of workers. Because we have micro data rather than country-wide data we can test whether indeed – as suggested in Boone and van Ours (2006) – a worker is more likely to be laid-off after experiencing a moderate accident. Furthermore, we are able to investigate directly whether the firing rate affects the occurrence – through reporting behavior – of workplace accidents. In Boone and van Ours (2006) the investigation was limited to cross-national comparisons. They therefore could not directly test the mechanism by which workplace accidents affect reporting behavior. Using micro-data allows us to go one step further. Our new empirical results also allow us to develop a richer theoretical model with more interesting welfare analysis and policy implications.

The paper is set up as follows. In Section 2 we present a theoretical model that explains the accident reporting behavior of individual workers. Workers are heterogeneous with respect to accident proneness and an accident reveals the innate probability of a worker to experience an accident. Workers report accidents because once reported firms invest in prevention. We show that workers become less eager to report accidents the higher the probability that the firm needs to fire a worker because then it may be more profitable for a firm to fire the worker rather than invest in prevention. We also show that more serious accidents are more often reported because the prevention of such accidents is more important for a worker. Section 3 describes the data on workplace accidents from our Austrian dataset. Section 4 discusses the statistical model and presents estimation results. We find that workers who reported an accident in a particular period of time are more likely to be fired later on. Apparently, when deciding about whom to fire in case of a negative demand shock employers take the accident history of workers into account. And, we find support for the idea that recessions have a disciplinary effect concerning the reporting of workplace accidents: if workers think the probability of dismissals at the firm level is high, they are less likely to report a moderate accident. For severe accidents we find no such effect. Section 5 concludes.

Section snippets

Theory

We introduce a model in which workers who experience a moderate work-related accident can decide whether to report such an accident or not. If a worker reports the accident, the firm will make an investment to accommodate the workplace that reduces the probability of an accident to this worker in the next period. To see more precisely what we have in mind, consider the example of a nurse working in a hospital. One of her tasks is to lift people out of bed and help them into their wheelchair.

Background

Our data are from the Austrian Social Insurance for Occupational Risks (AUVA) which covers all employees except federal railway employees and civil servants (2.8 million). The AUVA defines an occupational accident as “an unexpected external event causing injury, in locational, temporal and causal relationship to the insured occupation”.10 By law, occupational

Econometric model

This section describes the empirical methodology. We focus on two main issues. First, our empirical analysis will address the question whether workers who report an accident are in fact exposed to a higher risk of subsequent job loss. Second, we empirically investigate, whether reported workplace accidents vary over the business cycle and how the cyclicality in reporting behavior differs between severe and more moderate workplace accidents. This second analysis forms the basis of our empirical

Conclusions

Workplace accidents are related to workplace safety. Nevertheless, cyclical fluctuations in workplace accidents are puzzling from an economic point of view. Workplace accidents could be pro-cyclical because effort and hours of work are negatively related to unemployment and because higher work effort makes accidents more likely. Hence we should see more accidents during a boom and less during a recession. Alternatively, cyclical fluctuations in workplace accidents may be related to reporting

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The authors thank two anonymous referees for helpful comments on a previous version of the paper.

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