Background

This Preliminary Economic and Regulatory Flexibility Analysis addresses issues related to the costs, benefits, technological and economic feasibility, and the economic impacts (including small business impacts) of the Agency's proposed ergonomics program rule. The analysis also evaluates regulatory and non-regulatory alternatives to the proposed rule. This rule is a significant rule under Executive Order 12866 and has been reviewed by the Office of Information and Regulatory Affairs in the Office of Management and Budget, as required by the executive order. In addition, this economic analysis meets the requirements of both Executive Order 12866 and the Regulatory Flexibility Act (as amended in 1996).

The purpose of this Preliminary Economic and Regulatory Flexibility Analysis is to:

• Identify the establishments and industries potentially affected by the proposed rule;

• Estimate the benefits of the rule in terms of the reduction in musculoskeletal disorders (MSDs) employers will achieve by coming into compliance with the ergonomics program standard and some of the direct cost savings associated with those reductions;

• Evaluate the costs, economic impacts and small business impacts establishments in the regulated community will incur to establish ergonomics programs to achieve compliance with the proposed standard;

• Assess the economic feasibility of the rule for affected industries;

• Evaluate the principal regulatory and non-regulatory alternatives to the proposed rule that OSHA has considered;

• Present the Initial Regulatory Flexibility analysis for the proposed rule; and

• Respond to the findings and recommendations made to OSHA by the Small Business Regulatory Enforcement Fairness Act (SBREFA) Panel convened for this proposed standard.

The Preliminary Economic Analysis contains the following chapters:

Chapter I, Introduction

Chapter II, Industrial Profile

Chapter III, Technological Feasibility

Chapter IV, Benefits

Chapter V, Costs of Compliance

Chapter VI, Economic Feasibility

Chapter VII, Economic Impacts and Initial Regulatory Flexibility Analysis

Chapter VIII, Assessment of Non-Regulatory Alternatives.

Introduction and Industrial Profile (Chapters I and II)

The proposed ergonomics program standard was developed by OSHA in response to the large number of work-related musculoskeletal disorders of the upper extremities, back, and lower extremities that are threatening the health and well-being of many U.S. workers. Musculoskeletal disorders (MSDs) affect workers in almost every occupation and industry, regardless of establishment size, nature of work (clerical, professional, skilled, or unskilled), or industry sector. This is the case because work-related musculoskeletal disorders are caused or aggravated by risk factors -- such as repetitive motion, forceful exertion, vibration, and awkward postures -- that are present, either alone or in combination, in many jobs. The large number of musculoskeletal disorders -- 647,000 MSDs causing the injured worker to lose at least one day of work in 1996, according to Bureau of Labor Statistics (BLS) data⁽¹⁾ -- is largely explained by the continued reliance on unassisted lifting, carrying, and pushing/pulling of loads; the increasing specialization of work; and the faster pace of work (Ex. 26-1413).

Because these characteristics of work are not unique to the United States, countries of every size and on every continent are also experiencing significant numbers of musculoskeletal disorders among their workforces. Many of these countries -- ranging from the United Kingdom and Sweden to Pakistan, Ecuador, and South Africa -- have already established regulatory requirements designed to address some or all of the workplace risk factors giving rise to these disorders. A table summarizing the ergonomics rules and guidelines issued by other countries and organizations can be found in Chapter I of this Preliminary Economic Analysis.

To reflect the ubiquitous nature of MSD hazards in the workplace, the scope of the proposed standard potentially encompasses all workplaces within general industry. However, the scope of the proposed standard is tiered in a way that matches the extent of the ergonomics program required in a given establishment to the extent of the risk in that establishment.

The proposed ergonomics program standard allows employers whose employees are engaged in manual handling or manufacturing operations but have not experienced an MSD that is covered by the standard to implement only a basic ergonomics program. The proposed standard's full program requirements apply to any employer in general industry whose employees experience a covered MSD, not just to those employers who have manual handling or manufacturing jobs. Many employers have found that ergonomics programs that have certain elements and provide a framework to systematically consider and address work-related MSDs can substantially reduce the number and severity of their MSDs, as well as the costs associated with them.

There is widespread agreement that successful ergonomics programs include the following elements in some form:

• Management leadership and employee participation
• Hazard information and employee reporting
• Medical management (called "MSD management" in the proposed rule)
• Job hazard analysis and control
• Training
• Program evaluation.

The proposed standard adopts a tiered approach to program implementation and is job-based. This means that general industry establishments whose employees work in jobs that have a lower probability of incurring an MSD would not be required to take any action until an MSD has occurred. Moreover, further action would only be triggered if the employer determines that the MSD is one that would be recordable under the OSHA recordkeeping rule and, in addition, is the kind of MSD associated with risk factors that are a core element or significant part of the injured employee's regular job duties. Establishments whose employees have a higher probability of incurring a covered MSD, i.e., those with employees engaged in manufacturing production operations or manual handling jobs, would be required by the proposed standard to implement a basic ergonomics program for those jobs. The basic program essentially sets up an ergonomics surveillance system by establishing a way for employees to report MSDs as early as possible, providing them with the information they need to recognize MSDs and MSD hazards, and putting in place the management structure and employee participation mechanisms of an effective ergonomics program.

The full program, which must be set up if one or more employees has experienced an MSD that the employer has determined to be covered by the standard, requires the employer to analyze and control the "problem" job (i.e., the job held by the injured employee and any other jobs in the workplace that involve the same physical work activities), to provide affected employees and their supervisors with training, and to evaluate their ergonomics programs periodically. The full program is only required to be implemented in those jobs where a covered MSD has occurred and in those other jobs in the establishment that are essentially the same, with respect to physical work activities, as the job held by the injured employee. In addition, if no covered MSD occurs for three years in a job that the employer has controlled, the establishment is permitted by the standard to drop back to the basic program (if the establishment has employees who are engaged in manufacturing or manual handling operations) or to a program involving only maintenance of the controls in the problem job and any associated employee training (if the establishment does not have employees engaged in manufacturing operations or manual handling).

The basic program includes those elements that are appropriate to workplaces where problem jobs have not yet been identified:

• Management leadership, including allocation of resources, information and training for responsible managers or supervisors, and assignment of program responsibilities;
• Establishment of an employee reporting system and protection against discrimination for employees participating in the program or reporting MSD hazards;
• Providing employees with the information they need to recognize the signs and symptoms of MSDs and MSD hazards; and
• Employer determination of the recordability of the MSD and the relatedness of the MSD to the particular employee's job (to determine whether the MSD is one covered by the standard at all).

Once the employer has determined that an employee has experienced a covered MSD, the proposed standard requires the employer to implement a full ergonomics program for that job. However, the full program may not even then be necessary in all circumstances. For example, if the means of controlling the job giving rise to the MSD is obvious and the MSD hazard can be eliminated entirely, the employer may choose the standard's Quick Fix option and would not be required to implement the full program for that job.

To determine the number of establishments within the scope of the standard, OSHA needed to obtain data on the number of establishments with employees engaged in manufacturing or manual handling operations, and the number of establishments without employees engaged in these activities but who would be brought under the standard as a result of having a covered MSD. OSHA assumed that all establishments in the manufacturing sector (SIC Codes 20-39) would have employees engaged in manufacturing operations. OSHA estimated the number of establishments engaged in manual handling on the basis of responses to a question on OSHA's large-scale 1993 ergonomics survey. The survey asked general industry employers whether any of their employees engaged in lifting loads weighing more than 25 pounds. Because all lifts of 25 pounds or more would not necessarily qualify as a manual handling job under the proposed standard (to be considered a manual handling job, the proposed standard requires forceful lifting, lowering, pushing, pulling, or carrying to be a core element of the injured employee's job), reliance on the survey responses to estimate the number of establishments with manual handling jobs may mean that OSHA's estimates of the number of such establishments is high. To determine the likelihood that an establishment would have an employee who would incur an MSD, OSHA needed to determine the rate of MSDs by industry. BLS provided OSHA with data on the rates of lost workday MSDs by industry but does not have data on the rates of all MSDs, including MSDs involving restricted work only and those involving no lost worktime (Ex. 26-1413). In this analysis, OSHA estimates the rate of all MSDs on an industry-by-industry basis. To obtain the total MSD rate for each industry (including lost workday MSDs, restricted work MSDs, and non-lost workday MSDs), OSHA multiplied the reported rate of MSDs involving days away from work by the ratio of the rate of all injuries and illnesses involving days away from work to the rate of all injuries and illnesses for that industry. The number of reported lost workday MSDs in each industry was then multiplied by this ratio to obtain the total MSD rate for each 3-digit industry within general industry.

Table ES-1, based on data from County Business Patterns for 1996 (Ex. 28-2), shows the 3-digit industries covered by the standard and the number of employees and establishments in each covered industry within the general industry sector. Table ES-1 also shows the estimated annual incidence rates for all MSDs (lost workday, restricted work, and non-lost workday) for each industry. (These rates differ from those shown in the risk assessment section of the Preamble because they include an estimate of all MSDs, rather than lost workday MSDs only, and because they use County Business Patterns estimates of industry employment in computing MSD rates.) Table ES-1 shows that the total MSD incidence rates in general industry range as high as 3,434 per 10,000 workers (in Terminal and Joint Terminal Maintenance Facilities (SIC 423)). A total of about 6 million establishments and 93 million employees are present in general industry.

Table ES-2 shows that about 2 million of the establishments in general industry (or about one-third of all general industry establishments) will be covered by the standard (either by a basic or a full program) in the first year after the standard goes into effect. This table breaks these establishments out by those within the scope of the proposed standard because they have employees engaged in manufacturing operations, because they have employees engaged in manual handling, or because they have employees engaged in other activities that have caused a covered MSD. About 373,000 establishments are estimated to need a basic program as a result of having employees engaged in manufacturing operations, and a total of about 976,000 establishments will need a basic program because they have employees engaged in manual handling. In the first year of the standard's implementation, about 600,000 establishments whose employees engage in other general industry jobs (i.e., jobs that do not involve either manual handling or manufacturing operations) will need to implement ergonomic controls in jobs because they have an employee who has incurred a covered MSD. In the first year, approximately 7.7 million jobs will be controlled as a result of the ergonomics program standard. At the end of 10 years, approximately 30 million problem jobs will have been controlled (see Chapter IV of this Preliminary Economic Analysis).

Technological Feasibility (Chapter III)

Only a few of the proposed rule's provisions are related to technological feasibility; these are the job hazard analysis and control provisions in sections 1910.917 through 1910.922. These provisions require employers to analyze those jobs that have been linked to a covered MSD, as well as other jobs in the workplace that involve the same work activities and conditions as the job in which the covered MSD was reported. Once the job has been analyzed, employers must evaluate the risk factors identified by the job hazard analysis and implement controls to eliminate or materially reduce the MSD hazards in the job.

Employers are permitted by the proposed standard to use any combination of engineering, administrative, or work practice controls to achieve the required level of control. Engineering controls are always the control method of choice, because they eliminate the hazard at its source. However, the standard permits employers to use work practice and administrative controls to address MSD hazards as well. Personal protective equipment (PPE) may be used to supplement engineering, work practice, and/or administrative controls, but it may not be used as the only method of control unless other controls are not feasible. In addition, the proposed standard notes that back belts and wrist braces are not considered PPE under this standard because these devices do not provide an effective barrier between the MSD hazard and the employee. The standard also permits employers to implement an incremental abatement process, i.e., to try a control that is reasonably anticipated to materially reduce the MSD hazard and then to try another such control if the first control approach fails.

The proposed rule also clearly states that the controls that must be applied to the problem job are limited to those that are feasible. The Technological Feasibility chapter of this analysis provides an extensive list exemplifying the control measures that employers have found effective in addressing the risk factors of concern: forceful exertion, repetitive motions, awkward postures, vibration, contact stress, static postures, and cold temperatures. These are discussed in connection with manual handling, manufacturing production, and other general industry jobs.

Chapter III includes lists of controls to address each of the relevant risk factors associated with these jobs. Numerous intervention studies have also shown that controls of these kinds work to reduce risk factors and MSDs among workers in the jobs targeted by this standard. In addition, thousands of employers have implemented successful ergonomics programs and have identified many feasible engineering, administrative, and work practice controls to reduce the number and severity of the MSDs occurring in their workplaces. In addition, OSHA's 1993 ergonomics survey showed that 50% of general industry employees worked in establishments that have ergonomics programs, and OSHA expects that this percentage has grown since that time. Based on this evidence, OSHA preliminarily concludes that the proposed standard is technologically feasible for general industry employers with problem jobs. Ergonomic controls, including engineering, work practice, and administrative controls, as demonstrated by the many published case studies (such as those captured by the scenarios in Appendix III-A to Chapter III), are widely available, well understood, and demonstrably effective in reducing MSD hazards in the workplace.

Benefits Analysis (Chapter IV)

In its analysis of both the benefits and costs of the proposed standard, OSHA has estimated MSD rates based on BLS data. As discussed in the Preliminary Risk Assessment section of the Preamble, there is extensive evidence that MSDs are underreported to the BLS, perhaps by as much as 50 percent. To the extent that those provisions of the standard that are designed to encourage reporting increase the number of MSDs reported, both the costs and benefits of the proposed standard would be affected. (See the Initial Regulatory Flexibility Analysis, Chapter VII, for a discussion of impacts of a possible increase in MSD reporting on both the benefits and costs of the proposed standard.) However, the proposed standard also creates incentives for employers to discourage employee reporting of MSDs, because the reporting of a covered MSD is the event under the standard that triggers the need to implement job controls and/or a full program. In this Preliminary Economic Analysis, OSHA has chosen to assume that these two effects offset each other, and thus that the current MSD reporting rate will remain the same after the standard is issued. However, OSHA welcomes data and comments on the extent of current MSD underreporting, possible increases in the reporting of MSDs that may occur after employers implement an ergonomics program, and on the incentive effects of the proposed standard on employee reporting of MSDs.

Most of the benefits of the proposed standard will be generated when employers fix their problem jobs and thus reduce the number of covered MSDs these jobs cause. The standard's requirements for hazard information, MSD management and work restriction protection will also generate benefits because they will ensure that MSDs are identified and treated early in their development, thus preventing progression of the MSD to a lost workday case or a serious long-term disability. However, OSHA has not yet found ways to separately calculate the benefits of fixing problem jobs and the benefits of early detection, although the Agency is aware that early reporting and medical management have substantial benefits that are similar to those associated with preventive medicine in general. For example, Oxenburgh et al. (1985) compared two groups of video display unit (VDU) operators (Ex. 26-1041). In Group A, which did not report early or receive medical management early, 22% of cases were at the second or third stage by the time they sought medical attention, compared with 8% of cases at these stages in Group B, which had been made aware of the need to report early and the value of prompt medical management. The mean period of absence for Group A workers was 33.9 days; only 25% of this group continued to work (i.e., at alternate duty) throughout the period of recuperation. In Group B, however, the mean period of absence from work was only 3.4 days, and fully 80% of this group remained in alternate duty throughout. The mean number of alternate duty days was 91 days for Group A workers and 31.5 days for those in Group B. The total amount of time the average worker in Group A lost, either to days away or alternate duty, was 124.9 days; in Group B, this figure decreased by 72%, to 34.9 days. Thus the elements of the basic program plus medical management can have substantial benefits even in the absence of a full program. Most employers who have implemented ergonomics programs agree, and have included both hazard identification, early reporting, and medical management elements in their programs.

Most of the preventive, as against remedial, benefits of the proposed ergonomics program standard will stem, however, from the implementation of the full program, because the standard's most important preventive elements are job hazard analysis and control. The proposed standard (and therefore this economic analysis) is structured in such a way that the number of jobs fixed in any given year depends on the number of covered MSDs projected to occur in that year and the number of workers OSHA estimates hold jobs that involve the same physical work activities as the job giving rise to the covered MSD. The number of workers holding the same job, as defined by the standard, varies by industry and job.

A review of 88 studies of ergonomics program interventions showed that they reduced MSDs by an average of 67 percent (the median effectiveness rate for these studies was 64 percent). (These case studies are largely pre- and post-intervention studies of control effectiveness, expressed in terms of reductions in the MSD rate.) Those studies from this group that provide information on reductions in lost workday case rates and reductions in the value of workers' compensation claims demonstrate that these programs are even more effective in reducing the more serious types of MSDs. These intervention studies are, in turn, supported by the results of a large group of epidemiological studies of the work-related risk factors leading to MSDs (see the Preliminary Risk Assessment section of this preamble). That section describes the results of a large number of risk ratio studies reviewed by NIOSH (NIOSH 1997), which found that reducing the risk factors present in the jobs of the exposed populations (those who had experienced MSDs) to the risk factor levels found in the jobs of the control (non-exposed) populations in these studies would result in a 69% reduction in the number of MSDs of the neck or shoulder in the exposed population, a 57% to 86% reduction in the number of upper extremity disorders in this population, and a 56% reduction in the number of MSDs of the back. OSHA assumes, for the purpose of this benefits analysis, that the levels of risk factors present in the jobs of the workers in the control populations (i.e., the exposures of the control group workers to forceful exertions, awkward or static posture, repetitive motions, etc.) are equivalent to the levels of these risk factors that would be present in jobs that have been controlled or "fixed," as would be required by the proposed standard. Based on the data from these two sources (the intervention studies and the risk ratio studies), which report effectiveness rates that are strikingly consistent, OSHA estimates that the ergonomics program required by the proposed standard will prevent 50 percent of the covered MSDs that would otherwise have occurred in problem jobs. OSHA believes that this estimate of the effectiveness of the proposed standard is conservative, because many programs achieve substantially higher reductions and some eliminate MSD hazards entirely.

Estimating the number of employees whose jobs will be fixed by the full ergonomics program required by the standard is unusually complicated because of the structure of the proposed standard itself. For example, the full program is applicable only to employees in a job in which a covered MSD has occurred and to other employees in the establishment in the same job, as defined by the standard.

Any analysis of the number of employees affected by the program envisioned by the proposed rule must consider: (1) that some MSDs initially reported to employers will turn out, on closer examination, not to be covered MSDs, and (2) that some MSDs will continue to occur in jobs that have already been fixed. To OSHA's knowledge, there are no data available on either of these points.

Lacking such data, OSHA assumes, for analytical purposes, that all OSHA-recordable MSDs, rather than a portion of all OSHA-recordable MSDs, that occur in jobs that have not been fixed will require employers to implement a full program, and that all MSDs, rather than some MSDs, subsequently occurring in jobs that have already been fixed will not be covered MSDs and will thus not require employers to implement additional controls. In other words, for the purposes of this analysis, OSHA treats these two factors as offsets of each other, i.e., that the number of MSDs ruled out by the screening criteria will be equal to the number of MSDs subsequently occurring in controlled jobs. In actuality, employers will be required in some problem jobs to implement further hazard control, and some MSDs will continue to occur in jobs that have not been fixed but will nevertheless not trigger implementation of the full program. The result of these simplifying assumptions is to overestimate the frequency with which a full program will be needed in the first years after the standard is implemented and to underestimate the frequency with which a full program will be needed in the out-years. Because this analysis only covers the first 10 years following the proposed standard's effective date, OSHA believes that these simplifying assumptions are likely to lead to an overestimate of both the benefits and costs. (In its cost analysis, OSHA assumes that employers will incur costs to investigate all MSDs that occur; thus, the simplifying assumptions used here are not carried forward into the cost analysis, which instead assumes that employers will assess the OSHA recordability and then the covered status of all MSDs occurring among their employees.)

OSHA estimates that general industry employers will be required to fix approximately 7.7 million jobs in the first year the standard is in place, and a diminishing number every year thereafter. Over ten years, approximately 30 million jobs will be fixed. OSHA estimates that fixing these jobs will reduce the number of covered MSDs caused by these jobs by 50 percent per year (based on the effectiveness rate derived above) for the next ten years (the time horizon of this analysis). In the first 10 years, the proposed standard is therefore projected to avert approximately 3 million MSDs. By the tenth year the proposed standard is in place, it will have reduced the number of general industry MSDs by 26 percent, compared with the number of MSDs reported by the BLS for general industry in 1996.

OSHA estimates that the direct cost savings associated with each MSD, including the savings in lost productivity, lost tax payments, and administrative costs for workers' compensation claims, are $22,500 per MSD (1996 dollars). These direct cost savings do not attribute a value or assign a monetary cost to the pain and suffering of injured or ill workers, losses to their families, or losses of the worker's ability to contribute at home, and are thus conservative estimates of these savings. Based on this estimate of the direct cost savings associated with each covered MSD avoided, the annualized benefits (using a discount rate of 7%) accruing in the first ten years the standard is in effect are estimated to be $9.1 billion per year.

Costs of Compliance (Chapter V)

This chapter presents OSHA's estimates of the costs employers would incur to comply with the proposed ergonomics program rule. The costs reported are annualized costs measured in 1996 real dollars for the first 10 years the rule is in effect. To calculate annualized costs, non-recurring costs have been annualized using a discount rate of 7 percent for an estimated life of 10 years. The cost analysis does not account for any changes in the economy over time, or for possible adjustments in the demand and supply of goods, changes in production methods, investment effects, or macroeconomic effects of the standard. Taking account of all of these effects could increase or decrease the cost or benefit estimates presented here, although the macroeconomic effects of any rule whose costs are less than 0.05 percent of the Gross National Product (GNP) are likely to be minimal. OSHA believes that its approach, i.e., of determining the benefits and costs of the standard for industry as it is today, is the least speculative and least controversial way of presenting the benefits and costs of the proposed standard.

OSHA relied on responses to a major 1993 ergonomics survey (see Appendix II-A to Chapter II of this Preliminary Economic Analysis) of thousands of general industry employers to estimate the extent to which establishments within the scope of the standard already have implemented ergonomics programs involving the control of jobs. This current industry baseline was taken into account in calculating industry-by-industry and size-of-establishment cost estimates. That is, any costs employers have already incurred, and any benefits they have already accrued, in the course of voluntarily implementing such programs have not been attributed to the proposed rule.

Costs were calculated separately at the 3-digit SIC code level for all industries. These industry-by-industry cost estimates account for differences among industries in terms of wage rates, turnover, baseline rates of compliance, and the MSD rate for the industry. To facilitate analysis of the impacts of the proposed rule on small businesses, costs were calculated separately for each of three size classes of establishments. The Initial Regulatory Flexibility Analysis (in Chapter VII of this analysis) provides a detailed summary of OSHA's unit cost estimates for each element of the standard.

Table ES-3 presents the annualized costs of the proposed ergonomics program standard. As this table shows, the total annualized costs to society are $3.4 billion, and the costs to employers are $4.2 billion. (The difference in these cost estimates is accounted for by the fact that an annualized cost of $875 million represents a shift in the costs employees are currently paying in the form of lost wages to costs that employers would be required to incur in the form of work restriction protection costs, i.e., a shift in costs from employees to employers.) The job control provisions of the standard account for $2.3 billion, or 54 percent, of the proposed standard's total costs, and the work restriction protection provision accounts for $875 million, or 21 percent, of this total.

Estimates of the costs of job control are presented as net costs, because OSHA has taken the benefits employers often accrue from productivity improvements associated with job controls as offsets to the costs of job control. OSHA estimates that the labor savings (productivity improvements) provided by the job controls the standard will require will amount to approximately $1.3 billion per year in annualized savings. ⁽²⁾ OSHA believes that many ergonomic interventions improve productivity, either because they reduce employee fatigue and relieve muscle pain (which means that the employee can accomplish more work in less time), or because they involve automating portions of jobs in ways that can be expected to improve productivity. In addition to such direct effects on productivity, ergonomic interventions frequently offset the employers' cost of controls by :

• reducing absenteeism because a worker is less likely to take time off to recover from muscle soreness, fatigue, etc.;
• reducing turnover, particularly since new hires are more likely to find an ergonomically designed job within their physical capacity;
• improving product quality because fewer errors are made when processes are more automated and demand less physical effort.

These positive productivity impacts are attested to by the experience of many employers (see the productivity tables in Chapter V of this Preliminary Economic Analysis). OSHA's 1993 ergonomics survey of general industry employers found that 30 percent of those employers who had implemented ergonomics controls reported that their ergonomics programs had had measurable positive impacts on productivity. On average, these employers (including the few employers who reported that their controls had negative impacts on productivity) reported a weighted average productivity improvement of 7 percent per intervention. A review of the case studies of ergonomics programs discussed in Chapter IV found that one program in four reported having produced an increase in productivity.

Economic Feasibility (Chapter VI)

The OSH Act requires the Agency to set standards for toxic materials and harmful physical agents (such as musculoskeletal risk factors) that are feasible, both technologically and economically. To demonstrate that a standard is feasible, the courts have held that OSHA must "construct a reasonable estimate of compliance costs and demonstrate a reasonable likelihood that these costs will not threaten the existence or competitive structure of an industry, even if it does portend disaster for some marginal firms" [United Steelworkers of America, AFL-CIO-CLC v. Marshall (the "Lead" decision)].

OSHA's analysis of economic feasibility is conducted on an establishment basis. For each affected industry, estimates of per-establishment annualized compliance costs are compared with per-establishment estimates of revenues and per-establishment estimates of profits, using two worst-case assumptions about the ability of employers to pass the costs of compliance through to their customers: the no cost passthrough assumption and the full cost passthrough assumption. Based on the results of these comparisons, which bound the universe of potential impacts of the proposed standard, OSHA then assesses the proposed standard's economic feasibility for establishments in all covered industries.

OSHA assumed that the establishments falling within the scope of the proposed standard had the same average sales and profits as other establishments in their industries. This assumption is reasonable because there is no evidence to suggest that the financial characteristics of those firms whose employees experience covered MSDs are different from firms that do not have covered MSDs among their workforce. Absent such evidence, OSHA relied on the best available financial data (those from the Bureau of the Census (Ex. 28-6) and Robert Morris Associates), used commonly accepted methodology to calculate industry averages, and based its analysis of the significance of the projected economic impacts and the feasibility of compliance on these data.

The analysis of the potential impacts of the proposed standard on before-tax profits and sales shown in Table ES-4 is a screening analysis because it simply measures costs as a percentage of pre-tax profits and sales under the worst-case assumptions discussed above but does not predict impacts on these before-tax profits or sales. The screening analysis is used to determine whether the compliance costs potentially associated with the proposed standard could lead to significant impacts on affected establishments. The actual impact of the proposed standard on the profit and sales of establishments in a given industry will depend on the price elasticity of demand for the products or services produced by establishments in that industry.

The screening analysis reflected in Table ES-4 shows that the potential impacts of the proposed standard on average industry profits are small, even under the worst-case scenario of no cost passthrough. For all industries as a whole, annualized compliance costs are 0.6 percent of profits. Compliance costs potentially exceed 5 percent of profits only for 10 industry groups, and they exceed 10 percent of profits only in one industry (SIC 561, Men's and boy's clothing stores). This potential impact is accounted for in this industry by the fact that, as reported by Robert Morris Associates (RMA), this industry's profits are extremely small -- 0.1 percent of sales (compared with an average profit of 4.89 percent for all industries).

Based on the potential worst case impact data for establishments in all industries shown in Table ES-4, OSHA preliminarily concludes that the proposed ergonomics program standard is economically feasible for the industries covered by the standard. OSHA reaches this conclusion based on the fact that, even under the worst case scenarios of full cost passthrough and no cost passthrough, respectively, impacts on average industry revenues are only 0.03 percent, and impacts on average profits are only 0.6 percent. In only one industry, SIC 561, do worst-case profit impacts exceed 10 percent and, as discussed above, this industry's profits are abnormally low (only 0.1 percent of sales). The average annual profit per establishment for the establishments in SIC 561 is $721, by far the lowest profit for any of the approximately 300 industries shown in Table ES-4.

However, because Table ES-4 also shows that the proposed standard's worst-case impacts are potentially concentrated in a few industries, OSHA analyzed the potential impacts of the standard on establishments in these industries, termed "affected industry establishments" in this analysis. Affected establishments are defined for this analysis as those currently without an ergonomics program and whose employees are projected to incur a covered MSD in the next 10 years. OSHA's analysis of affected establishments thus looks at the potential for adverse impacts on those firms likely to experience the greatest impacts under the two worst-case scenarios described above.

The results of this analysis are presented in Table ES-4, which shows:

• Data on the number of affected establishments potentially affected over 10 years;
• Annualized costs of compliance per affected establishment; and
• Annualized costs of compliance as a percentage of affected establishment revenues and affected establishment profits.

Although Table ES-4 projects, as would be expected, potentially greater worst case impacts on the profits and revenues of affected establishments than was the case for all establishments, the proposed standard's worst-case impacts overall are only 0.1 percent of revenues and 2.1 percent of profits even for these affected establishments. Table ES-4 shows that impacts do not exceed 1 percent of revenues for affected establishments in any industry, even using these worst-case assumptions.

However, under the worst-case no cost passthrough scenario, Table ES-4 projects profit impacts exceeding 20 percent on affected establishments in three industry groups: SIC 138 (Oil and gas field services), SIC 561 (Men's and boy's clothing stores), and SIC 833 (Job training and related services). As discussed above, SIC 561's annual profit of $721 is lower by a factor of 5 than the profit for affected establishments in any other industry shown on Table ES-4, and establishments in SICs 138 and 833 have average profits of only 2.0 percent and 2.5 percent, respectively, approximately one-half the average profit rate for firms in all industries.

Nevertheless, OSHA analyzed the impacts of the proposed standard on these three industries more extensively to determine what factors might account for these potential worst-case effects on profits. As discussed above, establishments in SIC 561, Men's and boy's clothing, have profits that are lower, by a factor of 5, than those for any other industry shown on Table ES-4. In an industry such as this, even the very small per-establishment compliance cost of the ergonomics standard -- $404 -- represents a large share of annual profits. Establishments in this industry are already experiencing serious problems, but the compliance costs of the standard are not the source of these problems.

In the oil and gas field services (SIC 138) and job training and related services (SIC 833) industries, establishments are likely to be able to recoup their costs of compliance by raising their prices, and to do so without losing business, because both of these services serve local markets and/or occupy a specialized niche. For job training establishments, a price increase of only 0.5 percent would totally restore profits, even under this worst-case scenario. For oil and gas field services establishments, the story is the same: a price increase of 0.45 percent would completely restore profits. Even if establishments in these industries were completely unable to pass any costs through, a highly unlikely event, as the Court pointed out in ADA v. Secretary of Labor, the profits of these industries would only decline to 2.25 percent, compared with the current 2.5 percent rate for SIC 833, and to 1.8 percent, compared with the current 2.0 percent rate for SIC 138. These kinds of changes in profit rates are within the range of normal fluctuations in profits in most industries.

Thus, OSHA preliminarily finds, even for the potentially most impacted industries, and even assuming absolutely no cost passthrough, that the viability of affected firms will not be adversely impacted by the compliance costs associated with the proposed standard. OSHA has therefore preliminarily concluded that the proposed standard is economically feasible for all affected industries. OSHA has shown that, in the words of the Lead decision, the costs of compliance associated with the standard "will not threaten the existence or competitive structure" of any affected industry.

Economic Impacts (Chapter VII)

To identify the worst case economic impacts of the proposed ergonomics program standard for every 3-digit industry covered by the standard, OSHA compared annualized costs to revenues and profits for all covered establishments, for all establishments defined as small using Small Business Administration (SBA) size criteria, and for all establishments with 1-19 employees (Ex. 28-3). The comparison was made for establishments in each of these three size classes, for all establishments, and for all affected establishments (affected establishments are defined as those without programs in place and whose employees will experience at least one covered MSD in the 10 years after the standard is promulgated). Costs were annualized over 10 years, including the costs of controlling the jobs giving rise to all of the covered MSDs projected to occur in the facility over that time period.

OSHA analyzed the worst case impacts of the proposed standard's annualized compliance costs on establishments in each 3-digit SIC industry defined as small by SBA criteria. The results of this screening analysis are shown in Tables ES-5 and ES-6. OSHA's regulatory flexibility screening procedures (Ex. 26-1630) call for the agency to conduct an Initial Regulatory Flexibility Analysis if, in any affected sector, the annualized compliance costs exceed 1 percent of revenues or 5 percent of profits for a substantial number of small entities. This analysis is a screening analysis because it simply measures costs as a percentage of profits and revenues but does not predict impacts on these profits or revenues. The screening analysis is used to determine whether the compliance costs associated with the proposed standard could lead to significant impacts on covered establishments. The actual impact of the proposed standard on the profit and revenues of establishments in a given industry will depend on the price elasticity of demand for the products or services of establishments in that industry (see Chapter VII of this analysis.)

The results of the screening analysis presented in Table ES-5 show that the annualized costs of compliance do not exceed 1 percent of the revenues of SBA-defined small firms in any industry sector; in fact, costs as a percentage of revenues average 0.05 percent across SBA-defined small firms in all industries. However, the screening analysis shows that compliance costs do exceed 5 percent of profits for SBA-defined small firms in 15 industries. Focusing more narrowly on SBA-defined small firms that are affected (i.e., those whose employees will experience a covered MSD and who do not now have an ergonomics program), Table ES-5 shows that costs are less than 1.5 percent of revenues in all 3-digit industries and that costs for all SBA-defined small firms exceed 5 percent of profits in 45 percent of all 3-digit industries.

The screening analysis presented in Table ES-6 shows a similar pattern of worst case impacts for very small establishments, i.e., those with fewer than 20 employees: the annualized costs of compliance average 0.06 percent of revenues and do not exceed one percent of revenues for very small establishments in any industry. Focusing only on affected very small establishments, Table ES-6 shows that no 3-digit industry has annualized costs that exceed one percent of revenues. The costs of compliance do, however, have potentially higher impacts on the estimated profits of very small affected establishments. In approximately half of all industry sectors, annualized costs exceed 5 percent of profits for very small affected establishments.

Based on these findings, OSHA convened a Small Business Regulatory Enforcement Fairness Act (SBREFA) Panel (the report of the Panel is in the docket of this rulemaking as Ex. 23) and conducted an Initial Regulatory Flexibility Analysis, which is presented in its entirety in Chapter VII of this analysis. That section also contains OSHA's detailed responses to the findings and recommendations of the SBREFA Panel convened for this proposed standard.

Assessment of Non-Regulatory Alternatives (Chapter VIII)

The final chapter of the Preliminary Economic Analysis explores a number of non-regulatory alternatives, i.e., approaches to controlling MSDs that do not involve regulation. Options examined include private market incentives, such as information dissemination programs, reliance on the workers' compensation system, and increased use of the tort liability system. OSHA preliminarily concludes that the private market has not been effective in reducing the significant risk of incurring a work-related MSD that currently confronts general industry workers and that an ergonomics rule is therefore necessary.