An analysis of the costs of work-related accidents and illnesses in Catalonia

Transcription

1 An analysis of the costs of work-related accidents and illnesses in Catalonia A methodological proposal and figures for the years 2006 and

2 PUBLISHED BY Government of Catalonia Ministry of Employment Labour Relations Department AUTHORS Florencia Lilián Abiuso Daniel Serra de La Figuera Department of Economics and Business Pompeu Fabra University ACKNOWLEDGEMENTS The authors wish to thank the Ministry of Employment for its help and support, and in particular, Carles Bochaca, Carme Saborit and M. Cinta Robert of the Technical Office and Julià Nájera, Emilia Molinero and Jaume de Montserrat at the Occupational Safety and Health Department, without whom this project could not have been undertaken. They would also like to acknowledge the collaboration of the UPF lecturers Manel Luque and Eva Garrido with this study. Finally, the authors would like to express their appreciation for Professor Jaume Garcia's role as the instigator of this project. Legal Notice This work is subject to a Creative Commons Attribution Non-Commercial Share Alike 3.0 Licence. It may be reproduced, distributed and communicated publicly providing that the author is cited and no commercial use is made thereof. The creation of derivative works arising from this permission is permitted, providing that they are disseminated with the same license. The license is also available for consultation at: 2

3 Contents 1. Introduction 6 2. Classification and valuation methods of the costs of work-related accidents and illnesses Classification of costs of work-related accidents and illnesses Cost valuation methods Indirect cost valuation methods Intangible cost valuation methods Some lines for potential improvement in cost valuation Inventory of costs associated with work-related accidents and illnesses and the evidence available Inventory of costs associated with work-related accidents and illnesses Theoretical framework used in the studies of Australia and New Zealand Some empirical evidence on the importance of costs of work-related accidents and illnesses Calculation of the costs of work-related accidents and illnesses in Catalonia Scope of the research. Available databases and information Description of the data for the years 2006 and A methodological proposal for calculating the costs of work-related accidents and illnesses in Catalonia Costs associated with maintenance of production (CMP) Long-term loss of income (PILT) Healthcare costs (CMR) Administration costs (CADM) Deadweight loss (CTRAN) Other costs (CALTR) Pain and suffering costs (CPAT) 41 3

4 6. The relationship between the methodological proposal for Catalonia and the inventory of socio-economic costs Costs to individuals Costs to businesses Costs to society Costs of work-related accidents and illnesses in 2006 and Categories calculated Categories not calculated Results Costs associated with maintenance of production of accident and illness victims Long-term loss of income Healthcare costs of accident and illness victims Pain and suffering costs Costs of work-related illnesses Costs of work-related illnesses associated with maintenance of production Healthcare costs of work-related illnesses Comparison of the results for Catalonia with those for New Zealand Analysis of results Ten conclusions 73 Methodological appendix Calculation of work-related accident and illness costs for Catalonia Estimated duration of absences from work and calculation basis for workers with work-related illnesses Estimated duration of absences from work by accident victims with unresolved cases Calculation of costs associated with maintenance of production 78 4

5 Calculation of costs associated with maintenance of production incurred by the employer Overtime payments (PH) Replacement and training costs (CSF) Employer excess payment (PAE) Additional payments by the employer to the Social Security (SS) Costs associated with maintenance of production incurred by society Costs associated with maintenance of production incurred by the worker Loss of long-term income Loss of long-term income by the worker Loss of long-term income by society Permanent disability benefit Taxes not collected (IMPLT) Healthcare costs Healthcare costs associated with work-related accidents Healthcare costs associated with work-related illnesses Calculation of pain and suffering costs 92 5

6 In any assessment of the overall burden of occupational injury and disease the main emphasis must be on the human cost the pain and suffering, loss of function, diminished quality of life, and premature death. Nevertheless, in recent years there has been an upsurge of interest in the economic cost of poor working conditions. 1. Introduction Dorman (2000) 1 An analysis of the figures for work-related accidents and illnesses in Catalonia in recent years 2 shows that between 2000 and 2006, there was a substantial reduction in the number of work-related accidents (11.13%), in a period in which employment increased, which means that the rate or incidence of accident/illness, defined as the number of accidents for every 100,000 workers registered with one of the social security systems covering work-related accidents and illnesses in Catalonia, fell from 8,141.6 to 5,949.6 in the same period. The main area contributing to this reduction was the industrial sector, where the rate fell by 22.73%, although in terms relative to the population registered with the Social Security, the work-related accident and illness rate fell more sharply in the construction and services sectors, in which the level of employment increased most significantly. Fatal accidents and illnesses fell by a lower rate than minor accidents. This positive development in the figures for work-related accidents and illnesses should not diminish the importance of the absolute figures. According to the report by the Ministry of Employment mentioned above, there were 162,979 work-related accidents in Catalonia in 2006, of which 143 were fatal. The work-related accidents and illnesses leading to an absence from work recorded in Catalonia in 2006 entailed the loss of over 3 million working days (an average of 19 calendar days absence from work for minor accidents and 89 for serious accidents) with a financial cost of work-related accidents and illnesses in terms of wages and social security payments that amounted to million euros. However, this cost does not take into account fatal accidents, or other costs such as healthcare expenditure or the costs associated with replacing the workers suffering from the accident or illness, or the costs of work-related illnesses, or the loss of future income by workers affected by a temporary disability. Other studies for Spain, such as the one undertaken by CC.OO (2005) 3, estimate that the costs of work-related accidents and illnesses amount to 1.76% of GDP. At a European level, an analysis of the socio-economic costs of work-related accidents and illnesses was carried out for the 15 European Union member states in 2000, the 1 1 Dorman, P. (2000), The Cost of Accidents and Diseases, in P. Dorman, Three Preliminary Papers on the Economics of Occupational Safety and Health, International Labor Organization, Programme on Safety and Health at Work and the Environment (SafeWork) 2 Information obtained from the document Report on work-related accidents. 2006, produced by the Technical Office of the General Labour Relations Office and Workplace Health and Safety Department of the Ministry of Employment of the Government of Catalonia. 3 CC.OO. (2005), A consideration of the costs of work-related accidents in Spain, Federal Secretariat for the Environment and Workplace Health, CC.OO. 6

7 point in time covered by the study (Eurostat, 2002) 4. In Spain, the estimated total cost of work-related accidents and illnesses was 5,645 million euros, of which 88% were labor costs (working days lost) and the remainder was other costs. Other English-speaking countries - in particular Australia 5 and New Zealand 6 - have produced studies to quantify the economic cost of work-related accidents and illnesses. The two studies use very similar methodologies to quantify the costs of work-related accidents and illnesses, and the details therein include the type of cost, and how the various costs are distributed according to the agent that assumes them (the employer, worker, or society), among other aspects. It is clear that the figures for affected workers, and the size of the estimated costs to date, in both absolute terms and in relative terms as a percentage of GDP, mean that a more detailed analysis of the costs of work-related accidents and illnesses is necessary, with these costs distributed according to the agents that bear them. Using the studies of Australia and New Zealand as a benchmark, this study aims to produce a methodology for valuing the costs of work-related accidents and illnesses in Catalonia, based as far as possible on the type of costs in the studies mentioned above and the distribution of those costs according to the agent bearing them. This methodology must make clear which items are included (and which ones are not, based on the availability of information on illnesses in particular) as regards the definition of work-related accidents and illnesses as an economic cost, and must be implemented in such a way that it facilitates updating of the figures in the long term. The report begins in the second chapter with a discussion of the generic classifications of the costs associated with work-related accidents and illnesses, and the various alternative methods of quantifying (measuring) these costs. The third chapter considers the inventory of costs of work-related accidents and illnesses in detail, and distinguishes between them based on the agent bearing them. This chapter also presents the proposals made in Australia and New Zealand, with the results quantified in terms of how the total costs are divided among the agents and the type of costs. The chapter ends with the presentation of the method used by Eurostat to value the costs of work-related accidents and illnesses in the 15 European Union countries in The fourth chapter considers the availability of information for undertaking a study of this type in Catalonia. A description of the database we use is also presented. The fifth chapter presents the methodological proposal for use in estimating costs of work-related accidents and illnesses in Catalonia. The sixth chapter presents the results of calculations of workrelated accidents and illnesses obtained in each of the categories defined. The seventh chapter presents a breakdown of these results by gender, age group, sector of work, occupation and other areas that we consider to be of interest. The report ends with a summary of the main aspects dealt with therein. 4 Statistical Analysis of socio-economic costs of accidents at work in the European Union, Eurostat, Working Papers and Studies, The study was produced by the Arianell Groupe Transiciel and coordinated by the Eurostat Health and Food Safety Unit D-6. 5 National Occupational Health and Safety Commission (2004), The Cost of Work-related Injury and Illness for Australian Employers, Workers and the Community, Canberra 6 Access Economics (2006), The economic and social costs of occupational disease and injury in New Zealand, NOHSAC Technical Report No. 4, Wellington 7

8 We conclude the study with a methodological appendix containing a detailed explanation of how each calculation was performed. 8

9 2. Classification and valuation methods of the costs of work-related accidents and illnesses It is widely accepted that the most important costs associated with work-related accidents and illnesses are human costs: pain and suffering, the potential loss of function, a poorer quality of life and a potential reduction in life expectancy. Other costs are those borne by businesses and society as a whole as a consequence of these workrelated accidents or illnesses. All this has led some authors, such as Dorman (2000) to make a distinction between the economic and non-economic costs of work-related accidents and illnesses. This distinction is made according to whether these costs can be calculated as a consequence of whether the goods or services lost have a market price, or can be assigned an approximate price by a qualified observer. One consequence of this definition is that the human costs mentioned above are not considered economic costs. The economic implication of a cost is not the consequence of it being calculable, but rather the consequence of the existence of an opportunity cost (i.e. what is given up when a decision is taken or a choice made), which in this case is the loss of welfare by an individual (and society). Likewise, this distinction between economic and noneconomic costs based on quantification can be based on the potential assignment made by an informed observer. As will be discussed below, the methods for translating these costs into financial terms are increasingly accurate, and are widely and increasingly accepted. We will therefore consider the quantification of the costs of work-related accidents and illnesses, rather than the economic costs of work-related accidents and illnesses, and in this context it is important to define and classify these costs and how they are valued Classification of costs of work-related accidents and illnesses The main reason for defining a specific classification of the costs of work-related accidents and illnesses is to assess them correctly, and to avoid the problems of double accounting that may arise depending on the classification process, and in particular, in cases where the aim is to distribute these costs between various agents (the employer, the worker and/or society). It is therefore important to make a distinction between real costs and deadweight loss. The former are related to the use of certain resources (labor or capital) or to the reduction in the economy's overall capacity to produce goods or services. However, deadweight loss does not entail the use of real resources and only involves payments from one agent to another. It is therefore a cost that does not affect the total costs associated with work-related accidents and illnesses (and therefore totals zero) but it does affect distribution costs. A typical example of deadweight loss is the payment of a fine as the consequence of a work-related accident. This involves a payment by the employer (cost) to society (an increase in resources). Of the classifications proposed in the literature to date, the one that seems to best meet these requirements of facilitating the valuation of cost and avoiding double accounting 9

10 is the proposal by Goodchild et al (2002) 7, which proposes making a distinction between direct, indirect and intangible costs. Direct costs are those related with the occurrence of a work-related accident or illness and with its prevention. This includes costs related to damage to physical items (machinery, vehicles, the environment, etc.), expenditure arising from treatment of the individuals affected and expenditure not directly related to the treatment of the individual, such as providing his/her family with help and advice. This costs category is similar to the one proposed by Dorman (2000), where direct costs to the employer are identified and attributed by the managers of the employer to the employer's health and safety budget 8. Social Security contributions for work-related accidents and illnesses, payments to medical staff and the costs of legal action arising from work-related accidents and illnesses fall within these direct costs. The definition of direct costs by Leigh et al (2000) 9 also complies with the headings considered by Dorman (2000). Indirect costs are losses of production as a consequence of the accident, and are mainly incurred by the person who has the accident 10. These costs are basically what Leigh et al (2000) also define as indirect costs, but are not the same as what Dorman (2000) deem to be indirect costs to the employer. Among the items included in this category are replacement costs (recruitment and training of workers to replace the worker suffering from the accident or illness), the moral effects on the colleagues of the accident or illness victim, and the accident s investigation costs. In fact, this is what Dorman (2000) deems to be the employer s external costs 11 (those attributed to an economic agent other than the employer where they arose), which include the indirect costs to the victim, those associated with members of his/her family and even the costs associated with the environment, which are classified as direct in the classification by Goodchild et al (2002). Finally, intangible costs are those associated with the loss of welfare by victims as a consequence of the physical, mental and behavioral problems arising from the workrelated accident or illness 12. These costs can be shared with other members of the family and even other members of society, according to the evidence provided by some studies in which the weight of each of these three items differs. The literature contains other classifications of work-related accident and illness costs based on other criteria. These include ex-ante costs and ex-post costs, guaranteed costs and non-guaranteed costs, fixed costs and variable costs. The latter classification makes a distinction between costs for the employer that are constant, whatever the nature of the accident or illness, and those that change depending on its nature. According to Dorman 7 Goodchild, M., Sanderson, K. and Nana, G. (2002), Measuring the Total Cost of Injury in New Zealand: A Review of Alternative Cost Methodologies, Business and Economic Research Limited, Report #4172 prepared for the Department of Labour, New Zealand. 8 They are those that are shown automatically in the employer's accounts. 9 Leigh, J.P., Markowitz, S., Fahs, M. and Landrigan, P. (2000), Costs of Occupational Injuries and Illnesses, The University of Michigan Press. 10 Indirect costs could also be deemed to include those incurred by the members of the accident victim's family or losses of production due to absence from work by victims of a work-related accident. 11 The importance of the external costs may differ in in each case analysed depending on various factors. Among these factors, Dorman (2000) mentions the level of competition in the market, the importance of unemployment and the level of development of public welfare programmes. 12 In the proposal by Dorman (2000), these are the non-economic costs referred to in this study. 10

11 (2000), this classification is relevant in terms of defining economic incentives for the managers of companies, in order to reduce the prevalence and seriousness of workrelated accidents and illnesses. Dorman (2000) also justifies the distinction between direct and indirect costs according to their definition, in order to assess to what extent the managers of the companies receive the economic incentives that really exist. Finally, according to Dorman (2000), the distinction between external and internal costs makes it possible to assess the difference between incentives for companies and other agents (society in general) to reduce the prevalence and seriousness of work-related accidents and illnesses Cost valuation methods One of the first questions to be considered when assessing the cost of work-related accidents or illnesses in a given period is the assignment of the event to a specific period of time, as there may be a disparity between the event takes place and when it is diagnosed, or between the onset of the economic consequences of the event and the diagnosis, or between when the accident takes place and when it is reported with a view to receiving the appropriate compensation. In addition, the costs can be calculated in two ways, taking into account either the costs of the accidents occurring in a specific period (year), or those that are awarded compensation in a specific year despite occurring previously or leading to payments in future periods. The first calculation is known as the incidence approach, while the second method is the prevalence approach. The incidence approach uses actuarial techniques to quantify the number of workrelated accidents and illnesses diagnosed in a specific period, and to place a value on the costs for that period and the anticipated costs in future periods. This method uses a bottom-up approach: the total cost of cases dealt with in a specific year is calculated based on individual data. Meanwhile, the prevalence approach quantifies the number of people receiving compensation payments for work-related accidents and illnesses in a specific year, regardless of the date the accident occurred or the date on which the case was diagnosed, and calculates the total payments made in the period analyzed. The approach used by this method is top-down: the total payments made in a specific year are distributed in proportion to the number of accidents depending on the various categories of injuries and illnesses considered. Among other studies, the paper by Freeman et al (2001) 13 compares the two methods, pointing out that the prevalence approach is less demanding in terms of gathering information, as it is initially aggregated, while in the incidence approach the basic information comes from the case histories of each work-related accident or illness that occurs in a given year. However, the incidence approach enables more exhaustive comparisons to be made between costs according to various variables, and is subject to fewer distortions created by the possible differences between average costs - which are 13 Freeman, K., LaFleur, B.J., Booth, J., Doyle, B.J. and Pugh, W.M. (2001), An Actuarial Method for Estimating the Long-Term, Incidence-Based Costs of Navy Civilian Occupational Injuries and Illnesses, Journal of Safety Research, 32,

12 those which are covered by the prevalence approach - and marginal costs. In fact, an analysis of the various empirical contributions to the literature on the quantification of work-related accident costs shows that to the extent that information is available, the incidence approach is being used increasingly often in comparison with the prevalence approach Indirect cost valuation methods As mentioned above, indirect costs are equivalent to the value of the production that has taken place in the absence of the accident or illness. The methods for valuing these costs in the literature differ fundamentally in terms of how they consider the economy's operating capacity, i.e. whether the economy is considered to be functioning at full capacity (unemployment is basically frictional) or whether it is operating below this capacity, which leads to some resources - and human resources in particular - not being used, i.e. it is an economy with unemployment rates above those of frictional unemployment. In the former case, they use the so-called human capital method (HCM), while in the later they use the friction cost method (FCM). The HCM quantifies the production lost as a consequence of the accident or illness as the discounted value of the individual's future income, given that the future value is less than the present value. The underlying assumption behind this method is that wages reflect productivity, i.e. wages measure the worker s marginal (additional) added value. Obviously, this assumption has been subject to some criticism given the variation in wages for different genders, races and age groups, meaning that in these groups, wages do not really reflect relative differences in terms of productivity. Furthermore, the choice of wage measure used is important (the average wage for the economy as a whole, the minimum wage, the wage in industrial sectors). In specific terms, the production losses measured using the HCM are potential production losses or losses arising from a reduction in the production capacity of an economy due to a given rate of unemployment. Meanwhile, the FCM tries to calculate the current (more immediate) losses of production. In the short term, the production of the absent worker is deemed to be able to be postponed or distributed among other workers, while in the long term production can be taken over by unemployed people. Obviously, this is a minimal approach in terms of production losses from the point of view of the economy, and does not give much consideration to the possible disparities between the characteristics of the individual that is replaced and his/her possible replacements, the training and preparation costs involved and the implicit loss of production during this period. The differences in quantification of indirect costs can be very substantial depending on the method used, as shown by Koopmanchap et al (1999) 14 in the Netherlands. In any case, in an approach for assessing costs based on the agent that bears them, the HCM seems to be a more appropriate (and more frequently used) method, which simultaneously includes the cost to the individual potentially affected and the potential cost to society - a cost which also tends to reproduce the real cost in situations close to full employment. 14 Koopmanschap, M.A., Rutten, F.F.H., van Ineveld, B.M. and van Roijen, L. (1995), The Friction Cost Method for Measuring Indirect Costs of Disease, Journal of Health Economics, 14,

13 2.4. Intangible cost valuation methods One of the aspects that distinguish intangible costs is that there is no market price associated with their consequences: the loss of welfare associated with physical, mental or behavioral problems as a consequence of a work-related accident or illness. The way to ascertain these costs is to quantify how much a person is willing to pay in order to reduce the probability of suffering a work-related injury or illness, which in the terminology is known as "willingness to pay". There are two methods in the literature for estimating this willingness to pay: the compensatory wage-difference method and the contingent valuation method. The basic idea behind the compensatory wage-difference method is that there is a type of trade-off between the wages an individual receives and the risk associated with his/her job. Wage differences may "compensate" for the risks assumed by the worker. Regression models are used to estimate the effect on wages of an increased level of risk in the workplace. Although the method is appealing in that it is based on "real" labor market dimensions, it has some problems such as correct perception and measurement of the risk associated with a job, the effective lack of alternative opportunities or difficulties in changing one s job, as well as the difficulty in distinguishing between risks with and without fatal consequences, which is important in the correct measurement of differences in remuneration. This method is also an aggregated measurement of the indirect and intangible costs. Meanwhile, the contingent valuation method 15 is based on a questionnaire formulating a hypothetical question: how much are we willing to pay for a specific product (less risk in this case) which has no market price? It aims to quantify the change in income, which with the change in the amount of the commodity analyzed (risk), leads to no change in the person's usefulness. The method has some limitations, which have been extensively discussed in the literature on the subject. These are mainly connected with the biases generated depending on the realism of the scenario, the way in which questions are formulated, and the way in which the quantification of willingness to pay is asked. However, unlike the compensatory wage-difference method, this method enables a questionnaire to be designed which only includes the willingness to pay linked to intangible costs. The studies by Dale-Olsen (2006) 16 and d Alberini et al (2006) 17 are two good examples of how the compensatory wage-difference method and contingent valuation method are used respectively, and applied to problems similar to those that concern us here. The availability of studies in this area for the Spanish case has meant that the evidence subsequently used is based on the compensatory wage-difference method. This means that it is necessary to clean up this valuation of the indirect costs measured using other methods in order to obtain an estimate of the intangible costs, along the lines of 15 This method is used very often in environmental economics and health economics, in order to quantify the value of goods and services, such as the value of certain goods e.g. a forest, a beach, or receiving postoperative treatments in one's home. 16 Dale-Olsen, H. (2006), Estimating Workers Marginal Willingness to Pay for Safety using Linked Employer-Employee Data, Economica, 73, Alberini, A., Hunt, A. and Markandya, A. (2006), Willingness to Pay to Reduce Mortality Risks: Evidence from a Three Country Contingent Valuation Study, Environmental & Resource Economics, 33,

14 what Goodchild et al. (2002) call hybrid methods, which are the result of using alternative approaches Some lines for potential improvement in cost valuation Goodchild et al. (2002) highlight some of the areas needing most work in terms of a more accurate quantification of work-related accident costs. Among these potential lines of work are: - Improvement of the databases of direct costs. - Consideration of the probabilities of survival and participation in the labor market, and estimations of expected wages in the future which take into account more specific individual characteristics, such as age. - Calculation of the indirect and inferred effects on the entire economy of workrelated accidents and illnesses (depending on the type of job and sector) based on using general balance models or multipliers in a framework of partial balance. - Improved calculation of the statistical value of a life which may be the basis for the quantification of intangible costs. 14