The Occupational Safety and Health Administration (OSHA) last week released requirements for the “vaccine mandate” President Joe Biden announced in September. The “emergency temporary standard” (ETS) has since been halted by the U.S. Court of Appeals for the Fifth Circuit. But if the standard ultimately comes into force on January 4, it will apply to employers with at least 100 employees, requiring them:
to develop, implement, and enforce a mandatory COVID-19 vaccination policy
enforce a policy allowing employees who are not fully vaccinated to elect to undergo weekly COVID-19 testing and wear a face covering at the workplace.
The OSHA regulations will require that businesses implement procedures to obtain proof of vaccination among employees, grant workers up to four hours of paid time off for each vaccination dose, facilitate sick leave for recoveries from vaccination side effects, and introduce systems for weekly testing of still unvaccinated employees.
The standard does not expressly require employers to front the cost of the testing requirement, though they note that other state and federal laws or collective bargaining agreement terms may require that. Even if employers do not have to cover testing costs, compliance costs are estimated at $2.9 billion for covered entities overall.
What happens if this standard proceeds and companies are found to violate it?
The Occupational Safety and Health Act of 1970, inflation-adjusted for 2021, determines a maximum penalty for repeated and willful violations of OSHA rules at $136,532, with a minimum penalty of $9,753. The legislation sets a maximum penalty of $13,653 for any single serious violation, and a further penalty of not more than $13,563 per day for a failure to abate the violation (though the maximum penalty for this abatement failure is capped at 30 times the daily penalty).
Intriguingly, however, the most recent proposed Build Back Better reconciliation bill would increase penalties for breaches of these OSHA regulations by 10 times their previous values. If passed, this bill would therefore increase the maximum penalty for willful and repeated violations to $1,365,320, with a minimum penalty of $97,530. The maximum penalty for any single serious violation would rise to $136,532, as would the penalty for each day the violation continues.
Ordinarily, the OSHA area director who signs off on a citation will determine the precise penalty for any violation with a high degree of discretion. He or she would take four factors into account when deciding the penalty level: the gravity of the violation (entailing the worst possible outcome and risk of that occurring), the employers’ size, the employers’ “good faith,” and the employers’ history of compliance.
Given this emergency temporary standard has been introduced in lieu of the supposed grave safety threat associated with COVID-19 at work, however, it seems likely that violations will be treated harshly. OSHA doesn’t have the resources to audit or fine everybody, of course, so they will probably look to make an example of a few violators with large penalties to deter others from non-compliance.
There are so many different rules employers must comply with under the standard, though, that OSHA could probably find many distinct violations for any business objecting to implementation, each justifying a separate penalty. It’s worth noting here that the adoption of the standard itself has been justified in the federal register to “enable OSHA to issue more meaningful penalties for willful and egregious violations.”
Would such high fines be appropriate economically?
The stated purpose of OSHA regulations is to reduce the risk of illness, injury, or death in the workplace. As such, economists tend to use observations on how much groups of workers need to be compensated to bear similar magnitude risks of injury, illness, or death at work as a proxy for calculating the value of regulations that help mitigate injury or death risks (this risk-money trade-off is usually written about as the value of a statistical injury or the value of a statistical life).
This methodology is not without its critics. But experts such as Kip Viscusi believe that setting penalties according to the value of a statistical life can help to “create efficient incentives for deterrence to ensure that regulated entities assume the costs required to provide efficient levels of health and safety.”
On these grounds, the maximum proposed OSHA fines look far too high to reflect the risks of death associated with contracting COVID-19 at work.
Suppose all businesses and entities covered under the standard simply refused to comply with it. Under the BBB penalty levels, all 264,000 entities would be theoretically liable for fines of up to $1.36 million for a willful, repeated violation, plus $136,532 per day that they failed to correct it (up to a maximum of 30 times the daily violation, or a further $4.10 million). Collectively, across all entities, that’s a base of up to $1.4 trillion in theoretical penalties for outright refusal by entities to comply or then abate any single violation. Given just ignoring the mandate could result in multiple violations, these fines could run much higher still.
On the flip side, OSHA estimates that its “mandate” will save 6,500 lives. Even using the (high) value of a statistical life of $10 million from labor market studies from Viscusi, the mandate would therefore deliver value from mitigating death risks from COVID-19 of $65 billion.
The proposed Build Back Better fines, then, look much higher than justified by the benefits of the mandate in workplaces. Another way of putting it is that this maximum fine level would be appropriate if the risk was such that the mandate helped avoid 1 death in just under every 2 entities covered. OSHA themselves believe that the benefit of the mandate will eliminate 1 death for every 41 entities covered.
Yes, the benefits of a broader take up of vaccination may exceed these direct benefits, not least because of a swifter normalization in the economy. But the maximum penalties the Democrats are proposing in the reconciliation bill are far too high to reflect COVID-19 risks at work.
That disconnect will only get worse over time. With more people getting vaccinated or recovering from COVID-19, including children, the general risk of infection from any given physical interaction will fall, meaning the appropriate fine should decline too. Yet these proposed fines would endure for this standard for the full six months it is in operation. The vaccine mandate could then be extended if the administration goes through the whole formal notice-and-comment process and publishes a final regulation in the Federal Register.
If the reconciliation bill is passed, of course, these higher fines would apply to all relevant OSHA regulations, not just the vaccine mandate. This would raise the risks involved in running or opening a business across the board. Even if you take the case for all the regulations as appropriate, it seems likely the potential fine levels will be too high for some other risks at work as well.
Admittedly, there is a great deal of uncertainty about the precise penalty levels that would actually be charged on violations of the vaccine mandate. What we can say is that passage of the reconciliation bill would result in maximum penalties far beyond those appropriate to account for the risk of COVID-19 in the workplace.
Ryan Bourne and Brad Subramaniam write for the Cato Institute. Bourne occupies the R. Evan Scharf Chair for the Public Understanding of Economics at Cato.