Outsourcing Workplace Safety

Abstract

I study if firms deliberately sacrifice workplace safety for profits by using contract workers, for whom they are not legally liable. I exploit a regression discontinuity design around the amendment to the Occupational Health and Safety Act in Korea,2017, which expanded the legal accountability of firms to cover contract workers. The number of contract workers decreased by 18.1% in affected establishments compared to unaffected establishments. This change was not compensated by direct hiring, causing overall employment to fall by 1.3%. Working hours and wage costs paid to directly hired employees increased to make up for the resulting losses in work hours from the contract workers. Workplace safety improved at affected establishments at the cost of higher safety investment. Profitability dropped in affected firms, and those firms reacted by shrinking investments. The results are consistent with firms strategically outsourcing risky jobs to contract workers to offload their duties on workplace safety.