Accident Incentives

It really was a bumper day for left-wing whining today. The 90-day probation was extended to all businesses, the minimum wage went up to $13.00 ph and ACC re-introduced experience rating. All favorite left-wing bug-bears. The Herald shamelessly published a horribly slanted article on the 90-day trail with Helen Kelly in full cry, accusing National of being “anti-worker”. This is purest hyperbole. Ms Kelly has yet to demonstrate that the original 90-day probation period had any detrimental effect at all. The oft-quoted figure of a 22% dismissal rate is actually meaningless. No-one knows what the 3 month dismissal rate was prior to the act. No-one knows what increase, (if any) in dismissals has occurred simply because employers took a chance on employees who were only marginally suitable. The best the CTU could come up with were a handful of videos of hard-luck stories, only one of which really involved the 90-day trial.

I’m always fascinated by the furor generated whenever the minimum wage goes up. Labour had nine years of sterling economic growth to push the minimum wage up to whatever level they wanted. Does anyone seriously think that, if Labour returned to power tomorrow, they would immediately increase the minimum wage to $15.00ph? Even Mr. Goff realises that a rapid increase in the minimum wage immediately pushes up unemployment in precisely those groups most vulnerable – youth and minimum wage workers themselves. One only has to look at the horror of youth unemployment figures, following the abolition of the youth wage, to know that this is undeniably true.

But the biggest load of nonsense here is being spouted about ACC experience rating – the concept of rebating employers with good safety records. The contention of the CTU and left-wing blogs is that this will give employers the incentive to cover up accidents, in order to receive their rebate. This is complete and utter codswallop, not in the least because there is no evidence at all that this happens in countries where accident insurance is run as a normal insurance with a no-claims bonus or similar device.

The reason this does not happen is quite simple. It is virtually impossible to cover up an accident of any substance. You most certainly cannot cover up a loss of life or limb in the workplace. While it may be possible to cover up minor accidents easily, even the most dense employer quickly realises that multiple small accidents means an unsafe work place and an unsafe workplace means that a large accident is inevitable. Also the rebate for lower levels of small accidents is relatively trivial – the big bucks are saved by not killing or maiming your workers.

The consequence is that the incentive for employers to cheat is small, but the incentive to promote a safe workplace and spend real money on safety is great. This is precisely the experience of the South African mining industry. Workman’s Compensation in South African heavily penalises companies in which there are severe accidents. The mining industry therefore spends millions of Rand on safety. Consequently, South African mines are unusually safe, considering the depth at which they are working. Incentives do matter, and they do produce worthwhile behaviour.

When I first came to New Zealand, I was struck by the extreme lack of safety awareness of workers in hazardous environments. No-one wore safety gear. Loose piles of debris and stacks were not marked off. Fire exits and extinguishers were poorly labeled and hidden. Moving vehicles and pedestrians freely mixed. People happily walked under scaffolding while workmen operated above them. Foresters walked past moving timber trucks. Abattoir workers cut meat with bare hands. Fitters and Turners wore the flimsiest of goggles and worked right next to arc welders. The list of occupational health nightmares was endless.

I quickly learned the cause of all of this. The Accident Compensation Corporation.

ACC, as it stands, insulates the employer and the employee from many of the more unpleasant consequences of an accident. It encourages carelessness while fruitlessly attempting to promote prevention. Perhaps the incentive of ACC experience rating may go some way to re-introducing a culture of safety into New Zealand.

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