The European experience with economic incentives for OHS improvements

Last decade the New South Wales government operated a “premium discount scheme” intended to reinvest workers’ compensation funds into preventative safety measures and programs.  Other OHS jurisdictions had a similar authority but chose not to apply it.  Since then economic safety incentives have not been on the political agenda. 

However this is not the case in other parts of the world.  In 2010, the European Agency of Safety and Health at Work undertook a review of economic incentives (“Economic incentives to improve occupational safety and health: a review from the European perspective”).  Those findings may be worth considering in light of some of the political changes on incentives in other areas of public policy, such as carbon taxes.

From outside the European Union, the comparative charts of member schemes are of less interest than the literature review and report conclusions.  The incentives that the report says have some positive benefits include

  • The simple introduction of new OHS rules (good news for Australia)
  • Taxes (although the impact is limited)
  • Linking incentives to audits.

Empirical cases show the following options may increase prevention but their effectiveness requires more investigation:

  • Wage premiums
  • Cash rebates for physical activity
  • Monthly lotteries

Those with limited impacts or those whose benefits are negated, include

  • Linking insurance premiums to disease outcomes
  • Experience ratings of workers’ compensation
  • mployers’ liability insurance

The report says:

“In contrast to all these schemes, the effectiveness of pure cash benefits through workers’ compensation, however, have proven to increase both the cost of workers’ compensation insurance and the frequency and severity of injuries amongst the workforce.”

The report is at pains to point out that different approaches may be required for small- to medium-sized enterprises (SMEs) to those at the corporate level.  Some research supports “free OSH training and the introduction of effort-based premium systems,” but the report warns that much of the research needs careful consideration.  The report also stresses that the research studies do not lend themselves easily to comparisons so the findings must applied very carefully.

The report provides an important summary of safety in SMEs:

“…there is sufficiently strong evidence to conclude that employees of small enterprises are subject to higher risks than the employees of larger ones, and that small enterprises have difficulties in controlling risk.  According to the publications studied, the costs of fulfilling legal requirements in OSH are relatively higher in small companies than in bigger ones.  The most effective preventive approaches thus seem to be simple and low-cost solutions, disseminated through personal contact.”

This last sentence would be music to the ears of those OHS regulators who operate small business assistance schemes but such schemes are rarely subjected to independent evaluation.

With all the research limitations listed above, the authors were still able to come up with th e following policy recommendations:

  • “…any legal regulations should be supported by economic sanctions and/or incentives to make them effective”
  • “…government taxes have been found effective not only for punishing enterprises but also for rewarding  them for good OSH practice….”
  • Cash benefits are not a good idea….”other approaches such as experience rating or two-step premium assessment rating have shown better effects in terms of reducing the frequency and severity of work-related accidents and illnesses.”
  • “….internal economic incentive schemes have proven particularly creative and successful in practice.”
  • “…more direct economic incentives for OSH prevention measures [in SMEs] are necessary in order to lower the particularly high accident rates…
  • Equally important is…to ensure that a greater number of SMEs have access to OSH-related expertise and information.”

Importantly, each of these measures must be subject to rigorous evaluation.

Recent discussions on this blog have stated that good OHS outcomes should be sufficient reward for effort.  Safety awards recognise the effort of safety professionals, primarily and after the fact, but the incentives identified in the European research are more easily translatable into business management processes and may, therefore, provide a more sustainable preventive climate or, dare we say, cultural change.

Safety-related taxes are an option that the report recommends, with caution, but there may be some lessons from the current Australian campaign on carbon tax.  Australia’s proposed carbon tax is broadly applied and is intended to change business behaviour to reduce damage to the environment, just as the taxes mentioned in the report are intended to reduce damage to workers.  The argument in favour of the carbon tax is that business has known that major change has been required for several decades and that it has been slow to respond.  A similar argument may be able to be made in the area of workplace health and safety.  It would be fascinating to see the ideological arguments that a safety tax would create.

Kevin Jones

reservoir, victoria, australia

One thought on “The European experience with economic incentives for OHS improvements”

  1. All a bit rubbery for mine. From my little patch I get the impression that a way over-due positive incentive for businesses, particularly small businesses would be some very specific costings on what good OHS performance delivers, plus some hard numbers on what bad OHS costs.

    We will go on and on about how good OHS is a smart business decision and yet the numbers backing that claim up seem to be very light on the ground. I just don\’t understand why it\’s so.

    With a reasonable amount of resources aimed at putting together case studies, a valid costing of both sides of the coin (i.e. good performance economic gains & bad performance costs) could be put together. Of course it might be a big project, \’cause it would have to go into a big range of typical health and safety issues. I recall one set of numbers that traced the cost of a \”simple\” broken leg after a worker was hit by a forklift. The total cost to the business was calculated at 80 grand. Now, this was a word of mouth thing, but I resort to it often. I also do things like pointing out to a client stuff like: \”That key worker over there is being exposed to sensitiser chemicals. That means he can get allergic to that chemical he has to use a lot. Work out what it would cost ya if he can\’t use that chemical anymore.\” All those examples are rough as guts, but they are damn sight more useful than the scant information elsewhere.

    I don\’t think ya have to reward a business for doing what the law says they have to do. But I think you do have to get real about the sort of things that trigger smart behaviours from a business owner; and when we can talk hard numbers that effect staff retention, productivity and ultimately profitability then you are gettin\’ serious. And I don\’t mean what effectively amount to \”promises\” that good OHS is good for business, only specific case studies, really costed out would be treated as serious.

    There do seem to be some gains being made from the warm and furry messages about OHS, would be pretty flash if there were also messages that get down to business tin-tacks.

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