• The economic and social costs of occupational disease and injury in New Zealand – NOHSAC Technical Report 4
• Authors and Acknowledgements
• List of Tables
• List of Figures
• Glossary of Acronyms
• Executive Summary
• Introduction
• Literature and Methodology
• Compensation Data
• Total Cost Estimates
  • Uncompensated cases and the “N” matrix
  • Total cost elements
    • Production disturbance costs (PDC)
    • Human capital costs (HKC)
    • Health and rehabilitation costs (MEDC)
    • Administrative costs (ADMINC)
    • Transfer costs (TRANC)
    • Other costs (OTHERC)
    • Costs of suffering and premature death (SUFFC)
  • Summary of total costs
• References

4.2   Total Cost Elements

4.2.7   Costs of Suffering and Premature Death (SUFFC)

Gross cost of suffering | Net cost of suffering

Gross cost of suffering  

In all cases there was a degree of suffering, in some suffering was extreme for both participants and their families.²

The literature on willingness to pay provided an estimate of the value of a life year (VLY) in New Zealand of $184,216, based on the value of a statistical life of $3.9 million with a discount rate of 3.8% per annum over 40 years (Section 2.3.4).

We apply this valuation to all the severity categories to estimate the average cost of suffering and premature death (SUFFC). Critical parameters are the disability weightings from NOHSC,¹⁸ in turn based on Mathers et al³⁷ and according with the New Zealand weights from the Ministry of Health’s burden of disease and injury study also.³⁶

These weights are the same for compensated and uncompensated cases, and are summarised in Table 4.18. For each event, a number of possible examples are included.

TABLE 4.18	Disability weights used for estimating costs of suffering
SEVERITY		WEIGHT	INJURY EXAMPLES	DISEASE EXAMPLES
1		0.1	Open wound (0.108)	Moderate hearing loss (0.120)
			Short-term eye injury (0.108)	Slipped disc, chronic pain (0.125)
2		0.2	Rib fracture (0.199)	Melanoma, primary treatment (0.190)
			Internal injuries (0.208)	Severe asthma (0.230)
3, 4, 7		0.4	Femur fracture (0.372)	Colorectal/liver cancer, primary therapy (0.430)
			Burn, 20–60% (0.441)	Hypertensive heart disease (0.352)
5		0.6	Spinal cord injury (0.725)	Occupational overuse syndrome, severe (0.516)
			Poisoning (0.608)	AIDS (0.560)
6		1.0	Transport accident	Stroke/heart failure
			Electrocution	Lung cancer/mesothelioma

For severity categories 1 and 2, the pain and suffering is presumed temporary, so is limited to the average time off work. Hence the gross cost of suffering is:

Gross SUFFC_(1-2) = WLPI_(1-2)/52 * VLY * Weight_(1-2)

For categories 3 through 7, however, the human cost in terms of suffering and premature death is presumed to impact until ALE of 80 years at age 40 (from the New Zealand life expectancy tables), so the calculation is a present value one, with the discount rate of 3.8%. The equation is:

Gross SUFFC_(3-5) = SUM(i=1<0x2026>ALE-RTWA) VLY * Weight_(3-5) /(1+r)^i

Using this methodology, the gross cost of suffering from occupational incidents in New Zealand is estimated as $18.3 billion in 2004–05.

Net cost of suffering  

There is another important consideration. Since this calculation of suffering and early death is based on a willingness-to-pay approach from wage-risk studies, this item conceptually includes in the VSL the workers’ perceptions of the costs that they would bear from loss of healthy life, taking into account all known personal impacts – the suffering itself, lost wages/income, out-of-pocket personal health costs and so on. To avoid double counting, the latter elements must be netted out and an estimate of the net cost of suffering calculated. However, costs specific to the incidents that are not borne by the worker, and are thus unlikely to have entered into the calculations of people in the source wage/risk studies (for example, publicly financed health spending), should not be netted out.

The known financial impacts (to the worker) deducted from the gross cost of suffering are the matrices PDC_W, HKC_W, GAPW, REHAB_W, LEGAL_W, TRAVEL_W and OTHERC (presumed all borne by the worker), which together amount to $2.3 billion.

Note that, due to the transfer impacts noted earlier, the net cost of suffering borne by workers in category 1 is negative, ie, the increases in disposable income are estimated to outweigh the financial costs, on average.

With these adjustments, the net cost of suffering and premature death due to workplace incidents in 2004–05 is $16.0 billion.

TABLE 4.19	Gross and net cost of suffering, by severity, 2004–05 ($m)
SEVERITY		GROSS SUFFERING COST	SUM OF FINANCIAL COSTS BORNE BY WORKERS	NET SUFFERING COST
<7 days		19.1	–2.2	21.3
Full return		138.5	14.9	123.6
Staged return		11,651.4	1,401.3	10,250.1
Partial return		403.5	48.3	355.3
Permanent		87.3	21.3	66.0
Fatal		3,705.0	527.6	3,177.4
Other		2,253.0	265.4	1,987.6
Total		18,257.8	2,276.6	15,981.3

Comparison with international results

Leigh et al⁹ estimated that the cost of suffering and early death were over twice, and possibly up to six times, as high as all the other costs put together, at least US$350 billion with a crude range “between US$533 and US$905 billion” (p7), compared to US$155.5 billion. Human capital costs, in contrast, were “only” $67 billion (one-fifth of the lowest end of the pain and suffering estimates). Hence, our results parallel these proportions closely. Human capital estimates are likely to be in the $3 billion range – so five times this would be $15 billion. If total financial costs are around $5 billion, then our pain and suffering estimates are also between two and six times as high – just over three times in fact. These results also accord with the Australian proportionalities from NOHSC,¹⁸ unsurprisingly, given methodological similarities.

As in the US and Australian studies, the human life and suffering estimates are included in the conclusions but as a separate item, given the uncertainty surrounding the estimates of VSL and VLY.

ISSN 1177-2239

ISBN 0-478-28036-X

This document is available on NOHSAC’s website www.nohsac.govt.nz. It can be freely quoted, copied and circulated with appropriate acknowledgement. The suggested citation is: Access Economics. The economic and social costs of occupational disease and injury in New Zealand: NOHSAC Technical Report 4: Wellington, 2006.