About $1,250 billion  -- or 4% of annual worldwide GDP -- is absorbed by the direct and indirect costs of work accidents and occupational diseases, according to the International Labour Organization (ILO).

In an effort to develop economic indicators in the occupational health and safety field, The Institut de recherche Robert-Sauvé en santé et en sécurité du travail (IRSST) reviewed available methods for determining the costs of occupational injuries – and found nearly as many ways to classify costs as there are studies on the subject.

Researchers Martin Lebeau and Patrice Duguay looked at both the cost components and the methods used to compile data on occupational injuries and compared the results obtained from different combinations.

The costs

“Data availability and the reason why the costs of occupational injuries and data availability are being estimated are both factors that will influence the choice of the method to be used and of the cost components to be considered,”they write. “Moreover, a complete estimate of the cost of occupational injuries is not necessary in every situation. What is important is to use a cost estimation method that will provide results reliable enough to serve as a basis for decision-making.”

Lebeau and Duguay identify three categories of occupational injury costs:

• Direct: Components associated with the treatment and “repair” of the injury, such as medical costs. Direct cost data are usually quite easy to obtain and do not require the use of special estimation methods.
• Indirect: Costs related to the lost opportunities for the injured employee, the employer, the co-workers, and the community. They consist mainly of salary costs, administrative costs, and productivity losses. Compared with direct costs, indirect costs are usually more difficult to measure and are rarely insured.
• Human: These costs relate to the value of the change in the quality of life of the worker and the people around him. Human capital is by far the most widely used method for estimating indirect costs.“It takes remuneration as the basis for measuring the worker’s contribution to society and has the advantage of using reliable data and of being relatively easy to apply and understand.

The methods

Of the various methods being used, the willingness-to-pay method is the method preferred by economists. It consists of estimating the amount that an individual or society is prepared to pay in order to reduce the exposure to risk and includes both indirect and human cost components.

“Studies that favor this method obtain amounts much higher than those obtained using the human capital method, which implies that the human costs are quite high. However, the willingness-to-pay method is based on very restrictive assumptions and is difficult to apply.”

The authors note that the human capital method has the advantage of using reliable data and being easy to apply and understand.

“However, it measures only a portion of the costs resulting from occupational injuries, namely the productivity losses; it does not take into account the costs, including the human costs, for the injured worker. Ignoring these costs may result in an underestimate of the impact of occupational injuries and thus bias the decision-making process.”

Recent studies have recommended using hybrid methods, which combine several methods for estimating occupational injuries in the same analysis.

“For example, it is possible to combine a method for estimating human costs, such as the willingness-to-pay method, with a more traditional method, such as the human capital method.”

The future

The authors believe the hybrid methods represent the future of research in injury cost estimation.

“Study of the costs for society as a whole also appears to be the perspective recommended in the most recent works. However, this perspective is susceptible to double-counting. The costs for society are not simply the sum of the costs of the various economic agents. It must be borne in mind that these costs are transfers between agents; what is a cash outflow for some may be a cash inflow for others.”

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