“A more daunting thought is that it may have been possible for the employer to improve the safety conditions of his factory to prevent such deaths but bizarrely the cost of preventing these deaths exceeded the compensation he is liable to pay when a death occurs.”
A factory worker, aged 26, dies in an accident in the course of his work- a case of occupational fatality. The employer, under The Employees Occupational Act, 1923, is liable to compensate the family of the deceased employee or whoever is the claimant. As per the act, a compensation of 50% of the monthly wage multiplied by a relevant age factor, here 215.28 as the worker was 26 at the time of death, is to be paid. So, supposing the worker earned 15,000 a month, a sum of Rs. 16,14,600 is to be paid to the claimant. While the law dictates that this is a fair compensation that the close ones of the late employee deserve, does it also indicate that his death merely cost the calculated sum? Simply put, does this sum imply the worth of his life? A more daunting thought is that it may have been possible for the employer to improve the safety conditions of his factory to prevent such deaths but bizarrely the cost of preventing these deaths exceeded the compensation he is liable to pay when a death occurs.
Valuating a life has always been a questionable task, nevertheless, a necessary one for various reasons. Considering the above scenario, the argument that a life is “priceless” becomes futile after the death has occurred. The only compensation that can be offered is a finite monetary sum, though it obviously isn’t a replacement for the lost life. Compensation is not an equivalence of replacement but is the only fair solution after the occurrence of such unfortunate incidents.
Having an estimate of the value of life plays a significant role in policymaking as well. A relevant example would be the challenges governments faced in handling the Covid-19 pandemic. Almost all the economies of the world were posed with the dilemma of when to reopen the economy. While having a more restrictive approach meant a lower risk of loss of life, it also led to stunted economic growth. On the other hand, reopening the economy and lifting the lockdown would have boosted the economy but at the cost of more lives and pressure on the healthcare infrastructure. The government had to essentially calculate whether the loss of lives was greater than the economic loss. This is where the value of life came in handy.
Diving deeper, a commonly used method to describe the worth of a life is the “Value of a Statistical Life” or VSL. Organisations frequently use this approach in decision-making. VSL is the additional cost that individuals would be willing to bear for improvements in safety (reduction in risk), that in aggregate reduces the expected number of fatalities by one. Consider a policy that reduces the risk of death by 0.001 or 1 in 10,000. If an individual is willing to pay an additional Rs. 1,000 to reduce the fatality risk by 0.001, then collectively the group of 10,000 is paying Rs. 1,00,00,000 to prevent the loss of one statistical life.
There are some limitations to this approach too as there are with other approaches. At the core of any method of evaluating life are two factors- willingness to pay for a reduction in risk and willingness to accept compensation to forgo reductions in risk. These two may seem similar but differ in the amount of risk reduction. It is generally observed that when the risk reduction is small the two factors are approximately equal. But when the risk reduction is large, people tend to demand a larger compensation for forgoing the risk reduction as compared to what they are willing to pay for the risk reduction. This key difference is because of which VSL isn’t a good estimate for large risk reductions but works well for smaller ones.
VSL estimates are usually calculated for risk reductions related to industrial and road accidents and subsequently take into account middle-aged workers. However, the Covid pandemic set a new context for the estimation of VSL, engaging a lot of scholars and economists in its calculations. The point is that the value of a statistical life isn’t universal for everyone. No measure of life is accurate; rather, there is no accurate measure of life. Yet economists constantly strive to find such a measure to use as a tool, especially for cost-benefit analysis.
Questions have been raised about the ethics related to the use of this tool and rightly so as we observe the horrific practices of some businesses. The infamous case of the Ford Pinto cars in the 1970s will go down in history as one of the most disturbing uses of the value of life. In 1968, Ford decided to launch a new model- the Ford Pinto, to compete with the rising popularity of Japanese car brands. In pre-launch tests, Ford discovered that rear end collisions propelled the gas tank onto the real axle, which had protrusions that ruptured the tank and caused the car to catch fire. Shockingly, Ford did not bother to improve its safety. The reason? Upon performing a cost-benefit analysis, the company found that the cost of changing the faulty design of the car to mitigate the risk of death and injuries ($137.5 million) was exceeding the benefits of this risk reduction which amounted to $49.5 million, calculated according to the guidelines set by the National Highway Traffic Safety Authority at that time. The company’s inhuman argument was that the cost of preventing deaths was more than the value of the lives themselves.
The issue is, putting a number to a life makes it similar to a commodity with a price, a commodity that may be traded off for something else. As a sentimental creature, it is uncomfortable to think of life in that manner but it plays a large part in making certain big decisions. The Ford Pinto case displayed a cold, candid use of VSL but frankly even governments are always trading off lives for something of an apparent greater value. There were countries that chose to lift lockdown restrictions during the Covid-19 Pandemic while accepting the deaths that came with it. As the saying goes, “One death is a tragedy, a million is a statistic.”
By:-Shatadru Sen
Citations:
- Colmer J. What is the meaning of (statistical) life? Benefit–cost analysis in the time of COVID-19. Oxford Review of Economic Policy. 2020 Aug 29:graa022. doi: 10.1093/oxrep/graa022. PMCID: PMC7499700.
- Social Value UK- “Valuation of a life”, 9 June, 2016.
- Sweis NJ. Revisiting the value of a statistical life: an international approach during COVID-19. Risk Manag. 2022;24(3):259–72. doi: 10.1057/s41283-022-00094-x. Epub 2022 Apr 19. PMCID: PMC9017085.
- https://philosophia.uncg.edu/phi361-matteson/module-1-why-does-business-need-ethics/case-the-ford-pinto/