Occupational safety in a frictional labor market

Work-related injuries and diseases entail substantial economic costs worldwide. This paper studies how the pro-vision of occupational safety is affected by the presence of search frictions on the labor market. Safety measures reduce a firm's current profit but increase future expected output due to lower worker mortality. I find that search frictions reduce the long-run gains of safety measures, which lowers the socially optimal level of occupational safety relative to a frictionless labor market. In a decentralized setting where wages and safety measures are determined at the firm level, matching externalities and a labor supply externality may further reduce safety provision. I obtain conditions under which these externalities are internalized and discuss the role of policy in promoting occupational safety. The model predicts a positive relationship between the equilibrium unemploy-ment rate and work-related mortality, which is verified using US data on fatal occupational injuries. Based on these estimates, I conclude that mortality from work-related injuries may be 10-15% lower in absence of search frictions.