Calculating the trade-off between cost and safety happens all the time.
The NHTSA’s safety standards reduce vehicle crashes. The FAA stipulates the training and expe-rience requirements for commercial airline pilots. OSHA requires that commercial contractors use fall prevention devices when working over 6 feet.
Safety harnesses and lanyards, crush-resistant roofs in automobiles, flight simulators for pilot training all cost money. But these requirements also save lives.
So, how much should you spend on sanitizers, N95 masks, nitrile gloves and COVID-19 testing to protect your workers? How valuable are your people?
Value of a Statistical Life
“The government has spent decades studying what a life is worth,” says The Washington Post. U.S. federal agencies regularly use a figure known as the Value of a Statistical Life to tally the cost of a new regulation. The VSL typically used is $9.3 million.
This number is “derived from extensive economic research looking at how much additional compensation people demand to take on potentially life-threatening jobs,” says Kellogg-
Insight from the Kellogg School of Management at Northwestern University.
In a nutshell, people will pay money to lower the odds of death. Or, they will demand greater compensation for high-risk work. The difference in compensation between low-risk and high-risk work “is the economic value we place on a lost life,” KelloggInsight says.
So, if a new government regulation—say, a requirement that construction workers wear respirato-ry gear to protect themselves from job site dust—is estimated to save just one life a year, the regula-tion can cost industry up to $9.3 million and make economic sense. Save 100 lives? A $930 million annual price tag is justified.
For the sake of discussion, let’s round VSL to $10 million, and apply it to COVID-19.
Protection Costs a Pittance
By late May, 100,000 Americans had died from the disease. The value of those lives—economically speaking—is 100,000 x $10 million, or a $1 trillion VSL.
The CARES Act will cost Americans $2 trillion ($1.76 trillion according to the latest Congres-sional Budget Office report), but it functions as an economic stimulus package. We need spending that protects lives.
Lawrence Summers, professor at and past president of Harvard University, and former treasury secretary and economic advisor for President Barack Obama, writes in The Post: “Given what we’re losing in GDP, we should be spending far more to develop tests.”
“If anything, the United States is in danger of overemphasizing the impact of the crisis on the economy,” Summer says, “and massively underinvesting in the health measures that are ultimately most important.”
Targeted testing of Americans every week would cost $6.6 billion, which,” Summers says, “is less than one-tenth of the weekly cost of the CARES Act.”
Contact tracing, an important step in isolating the disease, would cost $600 million a week—no more than 1% of the cost of the CARES Act, Summers says.
These costs are a pittance compared to the CARES Act’s price tag. But we should be willing to spend more than $2 trillion to protect our workers.
Protecting 1.2 Million Lives
Economists at the University of Wyoming modeled the cost-benefit factors associated with the pandemic. The model assumes that social distancing cuts peak infection in half, netting 1.2 million fewer deaths.
Economically, a pandemic that runs its course uncontrolled would lower U.S. GDP by $6.49 trillion, the Wyoming economists say. A pandemic curtailed by social distancing sees GDP drop $13.7 trillion, but the protective measures involved would save 1.2 million lives.
$13.7 trillion (cost of PPE and social distancing)
–$6.49 trillion (cost of the pandemic)
___________________________
$7.21 trillion (incremental cost for protection)
The $7.21 trillion cost for protection is justified because it falls below the $12 trillion VSL of 1.2 million lives saved.
Time Will Tell
So then, each of your workers has value: $10 million, economically speaking. And keeping them safe during the pandemic has enormous benefits. Their economic value far exceeds the costs asso-ciated with providing safety programs for them.
Now pricing is a funny thing. Some prices make sense. Some don’t. This price tag—$10 million VSL—makes perfect sense to me and others. Time will tell if federal agencies act on their own research.
Mark L. Johnson writes for the wall and ceiling industry. He can be reached via linkedin.com/in/markjohnsoncommunications.
