OSHA’s Voodoo Economics on Ergonomics

By Joe Lazzara, Scientific Technologies, Inc.

One of the most surprising and often challenged aspects of OSHA’s Ergonomics Proposal is the program’s relatively low economic impact on American businesses. OSHA estimates the cost of ergonomics programs at $2.8 to $3.5 billion. The numbers reported by various industries and a report by the Small Business Administration (SBA) tell a different story.

For example, the National Association of Manufacturers (NAM) found that, based on nearly 100 small and medium manufacturers of sizes ranging from 50 to 2000 employees and representing a wide variety of industries, OSHA’s ergonomics rule will cost small and medium manufacturers $6.7 billion in the first year.

The Food Distributors International, an industry association representing over 240 grocery distribution companies, estimated the impact on their industry at $26 billion in the first year and $6 billion per year thereafter. Extrapolating these results over the whole economy, FDI believes the more likely impact of OSHA’s rule will cost hundreds of billions of dollars.

So what estimates are we to believe? Can OSHA be that far off in its evaluation of the economic impact of an ergonomic rule? Perhaps to really benefit from OSHA’s tendency to understand the program’s costs, we should have their economists work at the IRS…

The Small Business Administration (SBA) has also produced a report evaluating the cost impact of the OSHA rule, and offers us a detailed look into the estimates involved and the shortcomings with OSHA’s assumptions. The SBA report is required by the Small Business Regulatory Enforcement Act of 1996 (SBREFA). OSHA is obligated to consider the economic impact of its rules on small business. The SBA report was prepared by Policy, Planning and Evaluation, Inc.

The Cost Elements

Let’s dissect the current proposed rule into distinct cost elements, and then examine the two approaches and assumptions, SBA vs. OSHA. We will then estimate the potential program costs for a "typical" firm of 15 employees. OSHA estimated this employment figure by dividing the total employment in private industry by the total number of establishments.

Phase I of the ergonomics proposal consists of two parts: (1) management leadership and employee participation and (2) hazard identification and reporting. Phase II section contains the next four elements; (3) job hazard analysis and control; (4) medical management; (5) training and (6) program evaluation.

By the way, don’t assume you will only need to complete the Phase I elements. The full program, consisting of Phase I and Phase II, are required when an MSD occurs or if a known hazard exists.

Phase I Costs

In the Phase I section of the OSHA ergonomics program, the manager must obtain training, communicate and train employees about the new program, provide employees with a way to recognize symptoms and report musculoskeletal disorders (MSD), establish record keeping procedures, review past injury records and evaluate job hazards. OSHA believes that for a company of 15 employees, all of this would take 4.5 hours of management time and 6 hours of employees’ time. The total cost of these activities OSHA estimates to be a bargain price of $199.63!

The SBA report more realistically estimates that it will take a manager several days to understand the ergonomic standard, design, develop and implement an ergonomics program. Furthermore, nearly all of the job classifications will require analysis to understand whether the standard applies. Since physical movements of lifting, bending, repetitive motion, etc., are performed in many job functions, this task is more complex and time-consuming than OSHA’s estimates.

The SBA report believed it would likely take a company of 15 employees 70 hours of personnel time to conduct Phase I. The company would also spend $1,250 on communication and training materials. Total Phase I expenditures for our hypothetical 15 personal company is $2,704.70, versus OSHA’s $199.63.

Phase II Costs

Phase II is generally invoked after a MSD injury has occurred. The company must analyze the job where the MSD was reported, identify engineering controls (the preferred means) or work practice changes to achieve MSD reductions or elimination. The costs incurred here include the alteration or re-engineering of plant equipment.

This phase also includes medical management expenses, including health care costs and compensation to an injured employee for 90% of earnings (for those removed from the workplace) for up to six months.

Other Phase II expenses include a program evaluation to determine whether or not MSDs are materially reduced.

Not surprisingly, OSHA again appeared to have underestimated the costs involved with Phase II. For example, OSHA estimated it would take a manager up to 5 hours to evaluate control measures to mitigate further MSDs. Perhaps to the chagrin of the consulting industry, OSHA assumed a consultant is only required 10% of the time, and their total fees would be $1,000.00. The SBA report estimated 38 hours to implement Phase II and included $1,500.00 for consulting and training services. Again, this data is for a 15-person entity.

Cost of MSD Controls

Perhaps the section of the ergonomic standard of most interest to the plant automation market is the cost to implement MSD controls. Recall that engineering controls are the preferred method. The use of work practice changes and personal protective equipment are considered interim solutions.

OSHA assumes the cost to implement MSD controls will cost $2,400 per MSD. The basis for this figure is derived from two other OSHA assumptions: each MSD affects three employees and the cost of controls is $800 per affected employee. Most readers would agree that $2,400 doesn’t go very far in most companies – recall the 240 food distributors estimating they would spend $25 billion.

The SBA report also disagrees with the $2,400 cost per MSD estimate, but admitted that "in the absence of data based on actual experience it is difficult to develop ‘average’ costs of the controls and therefore, the cost of this provision cannot be determined." Instead, SBA provides a range of control costs, ranging from $5,000 per MSD for low risk companies to $50,000 per MSD for high-risk firms.

Even at the low OSHA estimate of $2,400 per MSD, and with OSHA's estimate of 647,000 MSDs/year, the cost of controls alone is $1.5 billion, although the more likely figure is several times greater, since the SBA report believes OSHA has underestimated the number of MSDs by as much as one million occurrences.
If the SBA report is correct, then the cost of controls increases to $3.9 billion, based on $2,400 per MSD. Using the low risk SBA estimate, the control costs rise nationwide to $8.2 billion.

Summary

The previous data is summarized in the following Table 1. The differences between the OSHA estimate of $4,075.41 and the SBA report ranging from $10,631.37 for a low risk firm to $63,529.79 for a high-risk firm is startling. OSHA’s ridiculously low estimates for hours required, cost incurred and expected injuries does nothing to help their crusade for ergonomics reform, rather, it undermines the credibility of the whole ergonomic program.

Lack of space did not permit me to provide an analysis of the medical costs and impact on work compensation insurance. Likewise, both OSHA and SBA report offsetting benefits to the costs incurred by the ergonomic program. However, as you might expect, the assumptions are equally far apart. For further information, please review the SBA report at www.sba.gov/ADVO/ergo.html.

In the meantime, be safe out there!

The SBA data was prepared by Policy Planning and Evaluation, Inc. (PP&E) in accordance with the Small Business Regulatory Enforcement Fairness Act.

Lazzara on Automation Safeguarding is a monthly column written for Safetyonline.com and Plantautomation.com

Joe Lazzara is president and CEO of Scientific Technologies Inc. (STI, Fremont, CA), the largest provider of automation safeguarding solutions in North America. Lazzara began his career with Hewlett Packard in 1973 where he had responsibility for safety and environmental issues for one of HP’s largest divisions. He joined STI in 1981 as vice president and became president in 1989 and CEO in 1993. Lazzara received a bachelor’s of environmental engineering degree from Purdue University and an MBA from Santa Clara University.