An indirect cost theory of work accident prevention

Abstract

Work accidents in North America engender costs to the employer which are substantial and rising. Paradoxically, firms seem unable or unwilling to control such wastage. Motivation to engage in prevention activities can be viewed as either voluntary, incentive or coercive, with the first as a preferred source. An extensive cost classification is provided: prevention, accident and OHS costs; fixed and variable insurance costs; direct and indirect costs. The authors hypothesize an informational deficiency by which the typical employer underestimates his accident costs and therefore the potential profitability of prevention outlays. The hidden or indirect costs, which are uncaptured by the accounting system or not attributed to accidents, are grouped under six headings: wage costs, material damage, administrator's time, production losses, other costs and intangible costs. A new, graphical model is developed showing that the identification of indirect costs will motivate cost-minimizing employers to increase investment in accident prevention. Older empirical research (Heinrich, Simonds) finds substantial indirect costs while very recent studies are divided on the level of such costs and therefore on their ability to motivate firms into greater prevention expenditures. The present authors discovered over $1100.00 (Cdn.) per time-loss accident in Quebec in 1988 and in excess of $2900.00 (Cdn.) in the Canadian Road Transport Industry in 1989.