How Productive Is Workplace Health and Safety?

• DOI: http://doi.org/10.1111/sjoe.12184
• Published date: 01 October 2017
• Date: 01 October 2017

How Productive Is Workplace Health and

Safety?∗

I. Sebastian Buhai

Stockholm University, SE-10691 Stockholm, Sweden

sebastian.buhai@sofi.su.se

Elena Cottini

Universit`

a Cattolica del Sacro Cuore, 20123 Milan, Italy

elena.cottini@unicatt.it

Niels Westergaard-Nielsen

Copenhagen Business School, DK-2000 Copenhagen, Denmark

nwn.int@cbs.dk

Abstract

In this paper, we investigate the causal impact of workplace health and safety practices

on firm performance, using Danish longitudinal matched employer–employee data merged

with unique cross-sectional representative firm survey data on work environment conditions.

We estimate standard production functions, augmented with workplace environment indica-

tors, addressing both time-invariant and time-varying potentially relevant unobservables in

the production process. We find positive and large productivity effects of improved phys-

ical dimensions of the health and safety environment, specifically, “internal climate” and

“monotonous repetitive work”.

Keywords: Firm performance; job quality; production function estimation;

work environment

JEL classification:C33; C36; D24; J28; L23

I. Introduction

The workplace environment has been central to labor policy debates in

industrialized countries. For example, a 2001 European Commission report

on employment lamented the status of working conditions in Europe, em-

phasizing direct and indirect large costs of occupation-related health risks

and accidents, of the order of 2.6–4 percent of the European Union (EU)

∗Elsa Bach, Gerard vd Berg, Paul Bingley, Nick Bloom, Annalisa Cristini, Harald Dale-

Olsen, Tor Eriksson, Nathalie Greenan, Lisa Lynch, John Van Reenen, Michael Waldman,

Thomas Zwick, two anonymous referees, and numerous presentation audiences provided

useful comments. NRCWE, ECONAU, CBS-CCG, Statistics Denmark, Kenneth Sørensen,

and Philip Røpcke helped with data provision or maintenance.

Scand. J. of Economics 119(4), 1086–1104, 2017

DOI: 10.1111/sjoe.12184

©The editors of The Scandinavian Journal of Economics 2016.

member states’ gross national product (GNPs).1The estimated costs of

job-related accidents and illnesses for the United States are equally large,

ca. 3 percent of GNP (e.g., Leigh et al., 1996).

Despite the policy interest motivated by such macro-level figures, there

has been little concern with the micro-level picture, such as employers’

(dis)incentives for improving their workplace environment. For instance,

there is almost no empirical research to date linking workplace environ-

ment quality to corporate performance. Our paper helps to fill this knowl-

edge gap, by contributing to the evidence on the connection between a

firm’s work health and safety environment and its production organization.

Expenditures by firms to enhance workplace conditions should be seen as

investments in the economic sense (i.e., costs borne today in order to reap

benefits in terms of higher prof its tomorrow). Such investment decisions

are therefore expected to be strategic; it is not a priori obvious which of

several specific dimensions of the workplace environment should be tar-

geted, and in what way altering them affects firm productivity. One can

envisage several channels through which good health and safety conditions

at the workplace could be improving firm performance. For instance, em-

ployees would likely be more satisfied – and hence more productive – and

less likely to separate from the firm; alternatively, a healthier work envi-

ronment could lead to less absenteeism as a result of job-related illness

and disease, which might again translate into better firm performance.2

The empirical quest is to shed light on possible theoretical mechanisms,

by investigating the causal productivity effects of changes in specific work

environment health and safety indicators, and by quantifying their relative

importance.

Among the few more directly related studies, an early paper connecting

health and safety to productivity is by Gray (1987), who estimates the effect

of governmental health and safety regulation on total factor productivity

at industry level, and finds large negative productivity effects on regulated

industries. Gray (1987) acknowledges that such an aggregate-level analy-

sis has many caveats and that disaggregated micro-data are highly desir-

able. Other studies estimate the effect of pollution abatement expenditures

on firm productivity, using establishment-level data. Gray and Shadbegian

1Quoting from the report (European Commission, 2001), “[a]ccidents at the workplace and

occupational diseases remain a challenge to the EU economies, with direct and indirect costs

due to work-related health risks and accidents at work estimated to amount to between 2.6%

and 3.8% of GNP in the EU.”

2There is ample evidence that employee attitudes influenced by workplace organization can

have significant effects on economic outcomes (e.g., Bartel et al., 2003). Earlier research has

also shown that individual bad health can result from exposure to poor work conditions (e.g.,

Fletcher et al., 2011; Cottini and Lucifora, 2013), and that this might affect both worker

productivity and absenteeism rates (e.g., Ose, 2005).

I. S. Buhai, E. Cottini, and N. Westergaard-Nielsen 1087

©The editors of The Scandinavian Journal of Economics 2016.