Thank goodness for unions! If it weren't for unions, work would be a living heck for most workers. Why if the unions hadn't fought for a shorter work week, surely workers today would all be forced to work 50, 60, or more hours a week. If unions hadn't fought for safer working conditions, surely industrial accidents would be a leading cause of death for working age men and women. And if unions hadn't been willing to go toe-to-toe with greedy employers, firms would never have been willing to offer shorter work weeks, pension plans, health insurance, and other fringe benefits. And while we're at it, let's give a hearty round of applause to the U.S. government which each year mandates thousands of laws on everything from job hazards to family leave. Surely, without all these diligent efforts by unions and government to protect workers and consumers from the avaricious clutches of businessmen, life would be, in the words of Thomas Hobbes, "nasty, brutish, and short." Surely?!

As you have probably guessed, we beg to differ! But just how do markets take care of the interests of workers and consumers? As anyone knows who has ever approached their boss about a raise, it's not as though employers always seem driven by a desire to protect, nurture, and otherwise cherish their employees. "Sorry to see you go, and don't let the door hit you on the way out" was the printable portion of the response that one of the author's bosses gave him when he once asked for a raise. Remarkably, the simple framework that we developed in the previous chapters can be applied to the issue of worker and consumer protection.

Likely, you feel a little hesitant about discussing an issue such as worker and consumer protection in economic terms. After all, when we discuss protection issues, especially safety, we are discussing human life, and how can we ever put a price on something like that? Well, we aren't really putting a price on a particular human life, but rather on risk to human life in general. Almost every action involves some sort of risk. One could be smacked by a rollerblader while walking in the park, one could die in an airplane crash, and one could slip and fall in the bathtub. But walks in the park, airplane rides, and bathing are good things. People get pleasure from them, yet they all involve a risk. That risk can be reduced, but it can never be eliminated. Thus, the question we are concerned with is: how much risk to life and limb is the right amount?

If you are still uncomfortable with discussing risk in economic terms, ask yourself this question: would you ever stand for a speed limit of 25 miles per hour on the interstate? Almost everyone would find such a slow speed intolerable. Yet when you say the limit should be raised to between 55 and 75 miles per hour (which is where most people want it), you are implicitly saying that for the sake of convenience and speed, you are willing to increase the risk of an accident--to actually let more people die. While speed limits are quite different from government mandates about worker or consumer safety, they still involve an acceptance of increased risk to human life and limb--and solely for the sake of a fast and convenient system of transportation! So could it be that a particular government mandate could make us worse off, even though it makes us safer?

Let's begin with an illustration. Suppose a government study determined that a certain stamping machine, used in the steel industry, was unacceptably dangerous. Accordingly, the Occupational Safety and Health Administration (OSHA) issues an administrative decree requiring all firms who utilize this machine to switch to a more expensive, albeit safer, machine. Would this increase society's happiness? On the one hand, there would be fewer workplace injuries and fatalities. These are clear benefits that even hard-hearted, uncompassionate economists would be forced to acknowledge. On the other hand, the resources needed to satisfy this law would have to pulled away from other activities. Would the benefits be worth it? Suppose the OSHA-approved equipment cost the firm $1 billion dollars a year. Do you think it would be a good idea? How about if it cost $100 million? $1 million?

These are tough questions. Answering them requires balancing out the lost happiness that society suffers when it takes the resources used in supplying safer machines from other activities, against the gain in happiness that society will receive from having fewer injuries and fatalities. Who is in a position to balance out these gains and losses? From out of nowhere comes the most improbable hero of all--that money-grubbing, self-seeking, uncaring, capitalistic institution: the profit-maximizing firm.

The costs of supplying safer machines represent the dollar value of the happiness society would have received had the resources used to produce the machine been put to other uses. But what is the dollar gain of the benefits? If the firm supplies a safer workplace, that might make workers better off, but how does it help the firm? (Remember, we are assuming that firms don't care one whit about the well-being of their workers.) When it comes to output goods, the benefits of supplying additional goods and services are represented by their respective prices--which in turn reflects how much individuals are willing to pay for additional units of those goods and services. Could there be a similar process at work when it comes to workplace safety? Indeed, there is.

While workers don't pay for workplace safety directly, they can pay for it indirectly in their willingness to trade off wages and other financial benefits for nonwage benefits like safety. Let's suppose that each of 5 workers who have to use this stamping machine would get $40 of happiness per week from the additional safety (given 52 weeks a year, that amounts to $2,080 a year per worker, or $10,400 a year for the five workers). As a result, they would be willing to accept a dollar less per hour in wages if somehow they could convince the owner to substitute the new, safer machine for the old, dangerous one. Thus, a firm that employed the safer machine could save $10,400 a year in wages. As long as that greedy, profit-maximizing firm could purchase that new machine for less than $10,400 a year, it would do so.

But suppose the cost of the new machine was more than $10,400 a year. Then the firm wouldn't find it profitable to replace the old, dangerous machine; and workers would suffer a higher rate of injury. Exactly. That is precisely the outcome we want. If workers don't value the resources employed in the new machine at more than its costs, then we are really saying that workers wouldn't get as much happiness from these resources as other consumers would receive from them. In that case, the happiness-maximizing strategy for society should be to allocate these resources to their higher-valued alternatives.

Now we suspect that deep in your heart, you--dear reader--are harboring a number of reservations about our conclusions that firms can be trusted to do what's best for their workers. Let's see if we can anticipate what some of them might be. Let's begin with the argument, "This is crazy, you never see workers taking wage cuts to have safer working conditions." Response Number One: Why not?

If workers really did value safer working conditions, then why wouldn't they be willing to take a pay cut in order to have a reduced probability of sustaining an injury on the job? Would you accept a dollar an hour pay cut to reduce the probability of being killed next year from 100% to 50%? From 50% to 10%? If you are like most people, the answer to these questions would be, "Of course I'll take a wage cut!" Fifty percent and 10% are upsettingly high probabilities when one is discussing death.

But how about this: would you be willing to take a dollar an hour pay cut to reduce your probability of sustaining a life-threatening accident from 0.01% to 0.001% (that is, to reduce your chance of having a fatal accident from 1 in 10,000 to 1 in 100,000)? To put this in perspective, a 1 in 10,000 chance means that the average worker could expect to work 10,000 years before having a fatal accident. A 1 in 100,000 chance lengthens this period of time to 100,000 years. Now we ask the question again, would you be willing to take a dollar an hour pay cut to reduce your probability of sustaining a life-threatening accident from 0.01% to 0.001%?

If you are like most people, you probably would answer no to this last question. Those probabilities are so small that most of us would be willing to risk the higher 1 in 10,000 chance of having a serious accident and keep the dollar per hour in higher wages. In fact, given current, workplace fatality rates for the U.S. economy, most safety improvements fit into this last category.² Therefore, we suggest that one doesn't see many workers giving up wages to have greater job safety because most improvements make the workplace only negligibly safer. Most workers are not willing to make substantial sacrifices in wages in order to obtain marginal improvements in safety.

Response Number Two: If this story isn't true, why do we see firms characterized by dangerous working conditions paying higher wages? Consider work on oil derricks, which is notoriously dangerous. Injuries, both minor and serious, are common occurrences. Yet, workers are willing to work those dangerous jobs because firms pay a premium for that kind of work. Why do firms pay a premium for dangerous work? Because if workers had to choose between safe jobs and dangerous jobs, and both jobs paid the same wage, the choice would be what economists call a NO BRAINER. Without higher wages, workers would not be willing to do dangerous work. Even with higher wages, many workers choose not to take dangerous jobs. They would rather have safer jobs with lower pay. Said differently, these workers are willing to give up wages in order to get safer working conditions. But that's what we said all along!

The trump argument is always, "Oh yeah! Well that might be fine in theory, but that's not how it works in the real world." Response Number Three: Let's take a look at the real world. The figure below shows death rates for workers on the job during the period 1930 to 1990. Just how important has OSHA and workplace regulation been in reducing the number of employment fatalities?

Source: W. K. Viscusi, J. Vernon, and J. Harrington, Jr., Economics of Regulation and Antitrust, Lexington, MA: D.C. Heath and Company, 1992, page 714.

One doesn't need to have a Ph.D. in statistics to figure out that OSHA has had no observable impact in reducing deaths on the job. Amazingly, this figure shows that workplace deaths have been steadily decreasing since 1930. Why? By now you've probably figured out our explanation for this phenomenon. Profit-maximizing firms found they could increase their profits by providing safer workplaces for their employees.

But..But..maybe it was the unions after all. They were around in the 1930's. Maybe workplace fatalities have decreased since then because unions were fighting for workers' rights. We can't dismiss this possibility. But here's the amazing thing. It isn't just that workplaces are safer now then they used to be. Everything is safer. Cars are safer. Appliances are safer. Homes are safer. Look at the figure below.

Source: W. K. Viscusi, J. Vernon, and J. Harrington, Jr., Economics of Regulation and Antitrust, Lexington, MA: D.C. Heath and Company, 1992, page 606.

Now what could possibly account for the trend in decreased fatalities associated with homes and motor vehicles? Clearly unions had nothing to do with this. In contrast, we can tell exactly the same, profit-maximizing story about why firms would want to provide safer consumer products. If consumers value safety, they will pay more for safer products (anybody ever hear of Volvo automobiles?). If firms find that the greater revenues from safer products are more than the costs of producing the increased safety, they will take the initiative to produce those goods.

Safer consumer products. Safer workplaces. It's the same story. When the gain in happiness that society receives from increased safety is greater than the loss in happiness that comes from diverting resources from other uses in order to produce that safety, profit-maximizing firms will work to protect workers and consumers. And safety is not the only good which workers trade wages to buy. Longer vacations, family leave, health insurance, fewer working hours, and other non-wage benefits can also be "purchased" by workers through lower wages. If these benefits are in society's interest, it won't take a crippling industrial strike--or an act of Congress--to force firms to provide them.