Evaluation of Labor Economics & OSHA?

Question

“Profit-maximizing firms lack an incentive to provide job safety, and consequently, the federal government must intervene legislatively to protect workers against the unsafe working conditions that will surely result.”

What is the statement trying to say? Thanks

Answer 1

The statement is saying that Govt. intervention through legislation is necessary to protect workers from unsafe working conditions because:profit-maximising firms would not spend money to protect workers from accidents and diesease-prone working conditions. Thus for example, profit maximizing coal companies will not spend money on safety gear for miners and not care to constantly test for methane gas leakage to ensure safety of life and limb of coal miner workers because this expenditure will reduce their profit. Another example, many employers may not instal fire safet devices like fire detection instruments that signals danger through alarms or adequate number of fire extinguishers or regular inspection of eletricity lines to avoid short circuits in their offices. This would be safety hazard for the office employees but the employers will not be willing to spend on safety system to avoid spending money and increase their profit.

However, the meaning of profit maximisization in this statement is different from the profit maximisation principle in Economics. In economics the profit maximising firm finds out the profit maximising output based on cost curves and revenue curves. This has nothing to do with cost cutting to installation of safety devices.

Unfortunately, most people confuses with profit maximisation with respect to output or cost minimisation with respect to combination of inputs with the idea of economising on costs/ expenditure.

It is true that the business firms have a tendency to ignore workers' safety if such safety costs a lot of money. But in modern day all both govt regulation, high litigation costs and compensation awarded by courts have forced businesses, especially large businesses not to compromise on safety.