Further Analysis of the Theory of Economic Regulation: The Case of the 1969 Coal Mine and Health and Safety Act

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SCOTT M. FUESS, JR. and MARK A. LOEWENSTEIN

How does government regulation influence the structure of industries? In the coal mining industry increased safety can be provided with personal protection devices or with engineering controls; but the type of safety standard imposed is important because larger producers have a comparative advantage complying with engineering controls. Time series evidence indicates that the 1969 Coal Mine Health and Safely Act, by imposing engineering controls, drove out smaller, less safe mines, thereby shifting production toward larger mines.

"Many of the proposals made in the name of safety have little to do with the safety of the individual miner, but a great deal to do with the vested interests of the most powerful forces in the coal industry, the large operators and the union."

Mr. Robert Holcomb, Pike County Coal Operators' Association, House

Hearings on Coal Mine Health and Safety [4 March 1969, 556-7]

I. INTRODUCTION

The theory of compensating wage differentials predicts that a worker will demand greater compensation if he is to bear a higher risk of injury on the job. Higher wages are paid for jobs where the probability of a fatal accident is greater, although it is not clear this wage differential is paid for other unpleasant job characteristics. Despite this compensation for job accidents, the federal government heavily regulates workplace safety. Federal job safety standards generally do not specify injury rate standards to be met; rather, regulations typically require producers to use particular types of equipment and workplace designs. Focusing on particular safety standards, the Economic Report of the President [1987, 199-200] notes:

In the case of the cotton dust standard, for example, the risk of lung disease could be reduced by allowing the use of disposable masks. ...OSHA's [Occupational Safety and Health Administration] preference for engineering controls is particularly costly in the case of noise control.

The theory of economic regulation initiated by Stigler [1971; 1975] and Peltzman [1976] suggests that government regulations benefit certain interest groups at the expense of others. Maloney and McCormick [1982, 105] argue that if the most efficient firms in an industry have a comparative advantage in complying with regulation, then "price will increase more than costs for some firms. The rents of marginal firms will decline and some will exit as they face higher costs." Pashigian [1984] notes that if there are economies of scale in compliance, then regulation can increase the market share of the larger producers. According to Bartel and Thomas [1985], OSHA regulations do not appear to have led to lower injury rates, but the differential cost effects of occupational safety legislation may have benefited large producers and unions.

Few studies, notably Marvel [1977] and Linneman [1980], have examined specific acts of legislation to determine how government regulation redistributes rents among producers in an industry. Pashigian [1986, 201] calls the study of regulation's intraindustry effects an "infant industry." This paper contributes to this infant industry by modeling the effects of safety regulation to study the impact of the 1969 Coal Mine Health and Safety Act on underground bituminous coal mining.

Previous empirical studies indicate that federal mine safety regulation has had important indirect effects on the coal mining industry. Central to our analysis of these effects is Miller's [1984] observation that safety can be produced with "clearly defined alternatives," either labor specific personal protection devices or capital specific engineering controls and workplace designs. Since larger producers enjoy a comparative advantage complying with engineering controls and smaller producers have a comparative advantage complying with personal safety standards, the type of safety standard decreed will favor one group of producers over the other. …