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  • Writer's pictureMonash CDES Blog

Safer is the New Productive - How Workplace Safety Saves Lives and Dollars

What may be considered a necessity in the developed world often appears as a luxury in less affluent regions. Although disparities in health, education, and sanitation continually grab our attention, delving deeper reveals even more urgent concerns within these fundamental areas. As the world witnesses rapid industrialisation and economic growth in developing countries, ensuring the well-being of workers and the safety of workplaces has become imperative.

The ILO estimates that some 2.3 million women and men around the world succumb to work-related accidents or diseases every year; this corresponds to over 6,000 deaths every single day. Worldwide, there are around 340 million occupational accidents and 160 million victims of work-related illnesses annually. One would not be surprised to find that the majority of these incidents occur in the developing and underdeveloped world. In Bangladesh alone, it is estimated that each year, 24.5 thousand workers die from work-related illnesses and 11.7 thousand suffer from fatal accidents. With 17.6% of the population living below the lower poverty line, each injury costs victims an average of 4 USD.

Building collapses, factory fires and boiler explosions are just a handful of the tragic but frequent events that have happened in Bangladesh over the past ten years. To offer some context, despite becoming a member of the International Labour Organization back in 1972, Bangladesh did not enact comprehensive labor legislation until 2006. It was not until after the tragic Rana Plaza incident in 2013, which garnered global attention and underscored the critical significance of workplace safety, that the country amended its labor laws to align more closely with international labor standards. The Rana Plaza collapse, killing and injuring more than three thousand people in its wake, lives to be one of the worst industrial tragedies. The building housed five garment factories, a bank, and apartments. In spite of being the deadliest structural failure in the history of garment industries, half the brands associated with the building's collapse were yet to put any money at all towards compensation – at least, not publicly. The case would be similar for most other incidents, if not all.

The scenario is more common in the small and medium enterprise (SME) sector, where owners and managers think there is a large trade-off between safety and profitability. This is primarily because standard economic theory assumes that Occupational Health and Safety (OHS) practices are costly to the firm and solely benefit the workers. What they do not realize is there may be some complementarity between safety and operational efficiency. The well-being of workers has been shown to increase their productivity and the overall performance of firms but owners and managers remain unaware of this very phenomenon and continue to impose harsh environments on workers that are detrimental to both the workers and, as a consequence, the firm.

A recent study conducted by Monash University’s Centre for Development Economics and Sustainability in collaboration with BRAC, the largest NGO in the world based in Bangladesh, has shed light on the importance of OHS measures and the positive impacts they could have on workers as well as organizations. Through a randomized control trial involving SMEs in the light engineering industry in Bangladesh, the investigators determined the causal relationship between OHS training and both practices and the performance of the firms. The trial involved 2,248 firms in 1,235 markets in Bangladesh. The randomization occurred at the market level, the markets being situated across 79 sub-districts within 20 districts, ensuring that each market consisted entirely of either treatment or control group firms. The study consists of three distinct groups: two treatment arms and a control group. In the first treatment arm (referred to as the OHS arm), 522 firms received comprehensive OHS training, focusing on the firm owner or manager. The second treatment arm (referred to as the OHS+Biz arm) encompassed 504 firms, where firm owners received not only OHS training but also additional instruction in business management and financial connections, as well as access to a low-interest loan.

Overall business practices improved as a result of both initiatives.

In terms of production, the OHS arm boosted output without boosting employment or equipment investment, whereas the OHS+Biz arm concurrently increased output, employment, and equipment investment, indicating that OHS treatment alone increased productivity. The fact that OHS alone could increase productivity came as a pleasant surprise as one might have anticipated that the treatment involving financial incentives would have exerted a more substantial influence. Two years following the implementation of both interventions, there was a notable increase in both firm output and sales revenue, suggesting that the improvement in safety practices does in fact play a central role in mediating the impact of these interventions on firm performance.

The study has demonstrated how information and training can help owners and managers simultaneously run a safe workplace and maintain high profits.

In a nutshell, prioritizing worker safety is not just the right thing to do but also a smart move for a company's bottom line. When companies invest in safety, they often see increased productivity and higher profits fewer accidents mean less downtime and better resource allocation, ultimately boosting a company's financial health. It's a sound business decision that pays off in more ways than one.

Saima Khan

4 September 2023


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