AN EQUILIBRIUM MARKET MODEL OF THE EFFECTS OF GOVERNMENT SAFETY REGULATION (MINE SAFETY, WORKPLACE SAFETY, JOB SAFETY REGULATIONS, LABOR MARKET REGULATION)

SCOTT MACNEILL FUESS, Purdue University

Abstract

Job safety and risk of injury in the workplace are frequent and lively topics in economics. The theory of compensating wage differentials predicts that a labor market operates so that workers in riskier jobs receive higher wages. Despite empirical support for the theory, a substantial body of government safety regulations exists. The theory of economic regulation predicts that regulations arise when a group that stands to benefit is able to prevail in the political marketplace over a group that stands to lose. In light of these predictions, what are the effects of job safety regulations and how are the benefits distributed?^ An optimizing firm's safety supply problem is presented. It is shown that a firm must pay a higher wage for a riskier job. It is also shown that no firm benefits directly from government imposed safety standards. In an industry comprised of heterogeneous firms, allowing for the equilibrium adjustment of output price and the entry and exit of firms, it is shown that government standards requiring engineering safety measures benefit large firms and drive some small firms from production. This is due to large firms' comparative advantage in meeting these capital-specific standards. If part of the workforce is unionized, the the union also benefits (higher wages and employment) from these standards. Standards requiring labor-specific safety measures reduce large firms' profits and also harm the union. By focusing on the effects of safety regulation on industry equilibrium, many of the ideas contained in the theory of regulation are formalized.^ The hypotheses of the model are tested with data on the underground bituminous coal industry in the U.S. and in Kentucky. Following empirical evidence supports the hypotheses of the model. Following enactment of federal mine safety legislation in 1969 large mines gained market share, small mines were driven from the industry, and unionized miners obtained higher wages without losing employment. Empirical evidence for Kentucky coal mining indicates that large mines expanded and gained market share, while some small producers ceased production. ^

Degree

Ph.D.

Subject Area

Economics, Labor

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