Good safety is ‘bad’ business: how construction accidents are profitable (until a critical tipping point)

Are workplace accidents bad for business? Not necessarily for the economics, according to this spanking new open access study.

A large Spanish sample of construction company reported incidents was evaluated.

Exploring previous work, they highlighted:

·        One study of profitability of 300 companies in Catalonia over six years found that accidents reduced a company’s profitability, particularly the following year

·        Other work found that profitability decreased only after reaching a significant number of accidents, suggesting a non-linear relationship, e.g. a u-shape

·        Accidents encompass prevention and injury costs, other losses. These have been split into direct (sick leave, legal expenses) and indirect costs (reduced productivity, lost working time, business opportunities etc.)

·        As highlighted in one of the graphs (see attached images), there may be an optimal balance point where prevention and injury costs intersect (‘optimal’ not from the ethical perspective but from the ROI)

·        Moreover, this model suggests that as safety rises, prevention costs increase while injury expenses decrease

In this study they found:

·        More “occupational accidents are related to a higher company’s financial performance in the same year in all models and estimation methods”, with one exception

·        These findings support another study in that profitability “increases when more accidents are reported”

·        Hence, “The accident rate does not show an impact in reducing ROA in all models and estimations”

·        These findings supported an inverted u-shape in the same year of accidents, where profitability increases until a tipping point; after the tipping point, more accidents reduce company profitability

They argue that “These results should be understood in the sense that having a certain number of accidents is compatible with increasing profitability”.

However, this relationship “is possible because companies do not bear the total cost of accidents since a relevant part of them are [borne] by the society”.

And, “It is crucial to consider this safety market inefficiency and the negative externalities that private decisions generate for society due to the lower than socially optimal level of safety investment”.

Link in comments. I’ve also linked to a prior study which found similarly (that having accidents aren’t financially bad business, since prevention costs outstrip profitability until a tipping point.)

Of course, this doesn’t speak to the ethics and non-measurable costs of such decisions.

Ref: Estudillo, B., Carretero-Gómez, J. M., & Forteza, F. J. (2024). The impact of occupational accidents on economic Performance: Evidence from the construction. Safety Science, 177, 106571.

Study link: https://doi.org/10.1016/j.ssci.2024.106571

LinkedIn post: https://www.linkedin.com/posts/benhutchinson2_are-workplace-accidents-bad-for-business-activity-7210418779174969345-NqbI?utm_source=share&utm_medium=member_desktop

Prior study: https://www.linkedin.com/posts/benhutchinson2_is-good-safety-good-business-according-to-activity-7118711949126750208-sQwN?utm_source=share&utm_medium=member_desktop

Prior study: https://safety177496371.wordpress.com/2023/10/14/2897/