Cost Benefit Analysis of Industrial Noise Regulation
Holland, Stephen, Cross, Jean, The Economic and Labour Relations Review : ELRR
In many countries industry perceives that it is over regulated by Government. Governments have responded by requiring an economic analysis to be carried out as one part of the legislative decision making process. In 1985 the UK Government published a white paper called 'Lifting the Burdens of Government'. This requires all Departments developing proposals for regulatory control to underpin and to some extent to justify them with a structured assessment of the likely economic impact, particularly on businesses. In Denmark the Directorate of Labour Inspection is required to undertake economic appraisals prior to the promulgation of any new standard for the workplace. In Canada the Canadian Labour Code requires any amendment to existing legislation to be accompanied by an analysis of the anticipated economic impact of the amendment. In Australia an economic cost benefit analysis forms part of a mandatory Regulatory Impact Statement in two States (Victoria and New South Wales).
In the United States the Occupational Health and Safety Act does not specify how economic considerations are to be balanced but states that a standard should be set so that it 'most adequately assures, to the extent feasible, on the basis of the best available evidence, that no employee shall suffer material impairment of health or functional capacity'.
The definition of 'to the extent feasible', in economic terms is undefined and it is argued that formal cost benefit analysis is unsuited to the assessment of Occupational Health and Safety Standards. This view is also held by Lindeneg (1985) who looked at the theoretical basis of economic analysis and concluded:
There is no objective way of calculating the economic costs to Society, ie the net value of gains and drawbacks associated with a new standard for the working environment.
One particular piece of legislation which has been analysed in several studies across the world is the reduction of the noise limit from to 90dB(A) to 85dB(A). It has been estimated that if the noise limit is 85dB(A) for an 8 hour day approximately 8% of the exposed population will suffer hearing loss of 25dB or more after prolonged exposure. With the noise level limit set at the present standard of 90dB(A) the percentage rises to 18%. Noise levels in the 95-100dB(A) range which are still commonly found in industry cause hearing loss in 28-40% of the exposed population (Miller 1976).
It has been argued by some industries that it is not feasible to reduce noise at source to 85dB(A) and by others that it is prohibitively expensive. This regulation was therefore an obvious candidate for economic analysis.
Methodologies of Economic Analysis of Safety Issues
There are four methodologies of economic analysis commonly used when considering safety issues.
The simplest is a financial evaluation which takes account only of entities that appear in an organisations accounts. In the case of the noise regulation, the cost of compliance could be equipment modification, enclosure of noisy equipment, personal protective equipment and training in its use. The benefits of the regulation are a reduction in workers compensation claims. As pointed out by Lindeneg (1985) the purpose of regulation is seldom to improve profits and an analysis of costs and benefits which does not include the real purpose of the legislation in some way is theoretically flawed.
Cost Benefit Analysis
Societal cost benefit analysis offers a means of bringing intangible benefits into a logical economic analysis. It is assumed that the objective is to maximise social welfare and that all costs and benefits can be expressed in monetary terms. All gains and losses experienced by society as a whole, individuals and agencies within society are identified. A financial value is assigned to each gain and loss, both tangible and intangible, and the aggregate gain or loss resulting from the regulation is calculated. …