Is Environmental Health & Safety (EHS) Recession-Proof?

Is Environmental Health & Safety (EHS) Recession-Proof?

While the length and severity are debated, many economists believe we will see a recession in the next few months.

During economic downturn periods, businesses face many difficult decisions focused primarily on how and where to save money. This may involve efforts to lower operating expenses, reduce fixed costs like rent, a freeze on hiring, suspending expansion efforts, and reducing the size of the workforce.

Safety is, of course, another area where employers look to save a dollar. For organizations that have a dedicated safety budget, there are a host of fixed and variable costs to examine…

During a recession, organizational leaders may be forced to examine each department to uncover opportunities for reducing operational overhead—“safety” isn’t special or different from human resources or accounting, in that respect. Financial pressure or stress—to sustain a measure of performance, to return value to shareholders, or even to maintain solvency—often drives organizational decision-making, from the top on down.

Yet no business leader wants to accrue short-term cost savings at the expense of long-term profitability, or jeopardize a business built to weather or outlast a looming economic storm. These “boom, bust” periods are cyclical—they come to pass after altering the landscape. And it is also true that risk-aversion rises during periods of economic downturn. Leaders are simply less aggressive, more insular, and prone to protective measures, versus periods of rapid market expansion.

In 2008, the U.S. economy shed nearly 800,000 jobs a month. Businesses with 500 or fewer employees—“Small businesses”—accounted for 60% of private sector job losses. As you might expect, fewer business were started during the period, small business loans declined sharply, and optimism declined. Businesses with 500 or more employees—“Large businesses”—also felt the impacts of massive job loss and tighter access to credit and capital.

During an economic downturn, it is common for workers compensation claims to actually rise, despite the reduction in total workforce numbers and general employment contraction. Studies show that 50-80% of the increased cost of workers’ compensation is from new claim filing. The cost per claim also rises. Disability duration also extend. So a recession forces employers to confront a series of difficult decisions involving workforce management, invariably having to do as much or more, with less. In the context of occupational health and safety, such decisions are fraught with risks involving serious injuries and fatalities, occupational illnesses, or proliferation of accidents.

Historically, the business world has viewed safety as a “necessary evil,” draining budgets, interrupting productivity, and disrupting more profitable activities. Career safety professionals who have weathered one economic crisis can speak to this old attitude.

Yet there are many ways in which active safety management provides additional value and protects investment during a recession:

1. Reduction of Days Away Restricted Transferred (DART) rates

Injury prevention. The average cost of a single, medically-consulted injury is $44,000 USD. Reinforcement of safe working behaviors through training or awareness emphasis takes on an added importance in constrained labor environments. The average value of goods or services that a single employee must produce to offset the cost of occupational injuries and illnesses was $1,100 in 2020. The average cost of an employee fatality was $1.3 Million.

2. Days Away from Work (DAW) rates

Workforce reduction, employment contraction, hiring freezes, etc., all signal the need for employers to maximize their human resources in times of economic uncertainty. Continuity in the laborforce is a factor that employers can manage to, influence, and control. Safe working environments support this objective and keep people on the job, where they’re needed most. 70 Million work days were lost as a result of occupational injury or illness in 2021.

3. Claims Management

Since works compensation claims typically increase during a recession—workers comp is typically more lucrative than unemployment benefits—the need for active claims management also increases. Intensive case management efforts, in alignment with Return-to-Work programs, bring productive employees back to the job faster, reduce the expense of medical costs, and lead to quicker case resolution, saving employers real dollars.

4. Incident Prevention

Unsafe working conditions leading to accidents often involve employee injuries and illnesses, but also damage to property and equipment. In 2020, the damage to motor vehicles in work-related injuries cost $4.3 Billion; fire losses resulted in an additional $6.2 Billion. Accidents leading to property damage can happen at any time, however, the financial consequences are magnified during a recession, where it is more difficult to mitigate disruption or replace equipment with restricted access to credit.

Not only does safety management have the potential to improve outcomes during an economic downturn in several major ways, it is essential for controlling risk in times when tolerance for adverse events is extremely low. All of the risks covered here exist no matter how the economy is performing, they are just more damaging in the context of recession.

Generally, the notion of employee safety is underserved by many organizations, because a lack of understanding influences perception. Occupational safety is a relatively young profession. As a regulatory structure, the Occupational Safety & Health Administration (OSHA) has only been around for 50 years.

EHS is a dense and highly nuanced professional discipline. As a result, business leaders are distanced from safety – what it is in practice, what it means, and its return on investment – which often creates a blind spot in the context of the whole organization. While a business leader understands the need for property insurance, they may not understand the necessity of training loading dock workers on safe lifting procedures. They do not see how a lack of that training ultimately impacts the organization’s bottom line. However, work-related back pain is as common for dock workers as injuries from slips, trips, and falls. Back pain costs U.S. employers $8.4 million annually and requires an average of seven days for recovery per injury.

As leaders look for areas of cost reduction during an economic downturn, it is important to understand the difference between cuts that diminish your return on investment and create unnecessary risk, and cuts that support an immediate, higher return. According to the U.S. Department of Labor, high-performing safety and health programs save $4 dollars for every $1 dollar invested. So while it may not be wise or even financially feasible to increase spending in any area of the organization, there are still opportunities for additional investment that increase efficiency, lower-risk, and conserve resources in times of economic uncertainty.

Learn more about workplace safety training.

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