review of estimates of employment effects that commenters provided and
a summary of a report prepared for the Agency by Inforum--a not-for-
profit corporation (based at the University of Maryland) specializing
in the design and application of macroeconomic models of the United

States (and other countries)--to estimate the industry and aggregate
employment effects of the silica rule.
    Many commenters questioned OSHA's preliminary conclusions
concerning economic feasibility, but did so for reasons that OSHA has
responded to in previous chapters.
    A variety of commenters raised issues concerning industries with
possible silica exposure that were not covered in the Preliminary
Economic and Initial Regulatory Feasibility Analysis (PEA). A full
discussion of these comments and of industries added is provided in the
FEA.
    Many commenters questioned why OSHA used no data after 2006 (see
comments by the Brick Industry Association (BIA) (Document ID 2300, p.
5), the American Fuel & Petrochemical Manufacturers (AFPM) (Document ID
2350, p. 6), the Belden Brick Company (Document ID 3260, p. 3),
Basalite Concrete Products, LLC (Document ID 2083, p. 1), SBG
Consulting (Document ID 2222, p. 1), Acme Brick (Document ID 2182, p.
4), Erie Bronze & Aluminum (Document ID 1780, p. 1), Calstone (Document
ID 3391, p. 2), the Chamber of Commerce (Document ID 1782, p. 1), the
Mason Contractors Association of America (MCAA) (Document ID 1767, p.
2), Scango Consulting LLC d.b.a. Capitol Hardscapes (Document ID 2241,
p. 3), the National Concrete Masonry Association (NCMA) (Document ID
3585, p. 2944), the American Road and Transportation Builders
Association (ARTBA) (Document ID 2245, p. 4), and the Construction
Industry Safety Coalition (CISC) (Document ID 4217, Attachment 1, pp. 4
and 49-52)). As discussed in Chapter III of the FEA, OSHA is using
revenue data from 2012 and profit data averaged across the years 2000
through 2012. The revenue data from 2012 represent a reasonable choice
because this year was neither a peak growth year nor a recession year
and was the most up-to-date data available at the time this analysis
was developed. The range of years for profits assures the use of profit
rates from throughout the business cycle--including two recessions and
two sustained growth periods.
    One commenter questioned OSHA's sources and methodology for
estimating revenues (Document ID 2308, Attachment 9, pp. 7-8 and 14-
16). This commenter questioned the methodology used to update revenue
estimates between Economic Census years. This is no longer an issue as
OSHA is using 2012 Economic Census data and using 2012 as the base year
for the analysis. Therefore, there is no need for a methodology to
update Economic Census revenues.
    OSHA also received criticism on the choice of the data source and
the methodology for estimating profits of the construction industry.
These include comments from the National Association of Home Builders
(NAHB) and the CISC (Document ID 2296, Attachment 1, pp. 20-22; 2308,
Attachment 9, pp. 7-12).
    Stuart Sessions, submitting on behalf of the CISC, criticized OSHA
for using the Internal Revenue Service's (IRS) Corporation Source Book
(CSB) as the source for industry profits since those data are only
presented at the four-digit NAICS level instead of the five- or six-
digit NAICS level. Mr. Sessions recommended that OSHA use an
alternative data source for profit data and recommended Bizminer or RMA
(Document ID 4231, Attachment 1, pp.12-13). OSHA investigated these
sources and determined that these data were private data sources and
that their publishers would not allow the data to be made publicly
available. These other sources of profit data also suffered from the
disadvantage of not representing adequate and random samples of the
affected industries. A further discussion on this issue appears in
Chapter III of the FEA.
    In the PEA, OSHA used IRS data to calculate profit rates as the
ratio of net income to total receipts (with the numerator including
only firms with positive net income and the denominator including firms
with and without net income) by NAICS industry. In response to comments
criticizing this ratio as an inappropriate method to calculate industry
profitability (Document ID 2308, Attachment 9, pp. 11-12; 4209, pp.
115-116), OSHA has revised the way that estimated profits are
calculated. In the FEA, OSHA calculates profit rates using the method
recommended by Mr. Sessions, which is discussed more fully in Chapter
III. This method includes unprofitable firms and divides the ``net
income'' from all firms (profitable and unprofitable) by total receipts
from all firms (profitable and unprofitable), resulting in somewhat
lower profit rates.
    Similarly, Mr. Sessions criticized OSHA for using data that he
believed were at a level that was too aggregated to show economic
impacts of the costs of the rule accurately (Document ID 2319,
Attachment 1, p. 71). The Portland Cement Association likewise
disagreed with OSHA's presentation of costs as averages across
industries. It said that ``a more focused explanation of individual
plant and facility costs is relevant to those industries with
significant compliance responsibilities'' (Document ID 2284, p. 6).
OSHA's data sources for profile data are presented in Chapter III of
the FEA. In general, OSHA has disaggregated industries to the extent
that the source data will allow.
    The most common criticism of OSHA's preliminary conclusions on
economic feasibility was that the conclusions were based on costs that
were underestimated or inaccurate (e.g., Document ID 2023, p. 1; 2299,
p. 15; 2379, Attachment 3, pp. 2 and 10; 2388, pp. 2 and 10; 2296,
Attachment 1, p. 17; 2116, Attachment 1, p. 22; and 3378, Attachment
2). For example, Wayne D'Angelo of the American Petroleum Institute
(API) and the Independent Petroleum Association of America (IPAA) (API/
IPAA or ``the Associations'') critiqued OSHA's feasibility analysis for
the hydraulic fracturing industry, stating that OSHA had not met its
obligations due to inaccurate cost data and an industry profile that,
they asserted, did not ``reasonably represent the typical firms in the
various segments of the industry, given varying operations, exposure
levels, and processes'' (Document ID 2301, Attachment 1, pp. 62-63).
    OSHA responded to comments on its preliminary cost estimates in
Chapter V of the FEA. In the aggregate, OSHA increased its cost
estimate by approximately 46 percent, in part, as a result of changes
in cost estimates made in response to comments and, in part, as a
result of changes in the rule.
    Some commenters argued that OSHA had not adequately considered the
possibility that smaller establishments might have higher costs or that
the costs have a greater impact on small businesses (Document ID 4231,
Attachment 1, p. 11; 2379, Attachment 2, p. 7; 3582, Tr. 2107-2109;
2203, p. 1; 2351, p. 8; 3433, p. 9; 3580, Tr. 1398). As discussed in
Chapter V, OSHA has made a number of changes to the costs analysis to
reflect higher costs for small establishments.
1. Analytic Approach
a. Economic Feasibility
    The Court of Appeals for the D.C. Circuit has long held that OSHA
standards are economically feasible so long as their costs do not
threaten the existence of, or cause massive economic dislocations
within, a particular industry or alter the competitive structure of
that industry. American Iron and Steel Institute. v. OSHA, 939 F.2d
975, 980 (D.C. Cir. 1991); United Steelworkers of America, AFL-CIO-CLC
v. Marshall, 647 F.2d 1189, 1265 (D.C. Cir. 1980); Industrial Union
Department

v. Hodgson, 499 F.2d 467, 478 (D.C. Cir. 1974).
    In practice, the economic burden of an OSHA standard on an
industry--and whether the standard is economically feasible for that
industry--depends on the magnitude of compliance costs incurred by
establishments in that industry and the extent to which they are able
to pass those costs on to their customers. That, in turn, depends, to a
significant degree, on the price elasticity of demand for the products
sold by establishments in that industry.
    The price elasticity of demand refers to the relationship between
the price charged for a product and the demand for that product: The
more elastic the relationship, the less an establishment's compliance
costs can be passed through to customers in the form of a price
increase and the more it has to absorb compliance costs in the form of
reduced profits. When demand is inelastic, establishments can recover
most of the variable costs of compliance (i.e., costs that are highly
correlated with the amount of output) by raising the prices they
charge; under this scenario, if costs are variable rather than fixed,
profit rates are largely unchanged and the industry remains largely
unaffected. Any impacts are primarily on those customers using the
relevant product. On the other hand, when demand is elastic,
establishments cannot recover all compliance costs simply by passing
the cost increase through in the form of a price increase; instead,
they must absorb some of the increase from their profits. Commonly,
this will mean reductions both in the quantity of goods and services
produced and in total profits, though the profit rate may remain
unchanged. Other things being equal, higher fixed costs mean that the
optimal scale of the typical establishment will be larger than it would
be if fixed costs were lower. This in turn means that, where there are
higher fixed costs, there will be fewer plants for the same level of
production. Whether an increase in fixed costs results in closures of
existing plants depends on several factors. If demand regularly
increases (such as due to economic growth) or the industry regularly
experiences plant closures, the optimal scale may be arrived at by
reduced entry rather than premature closures. If plants are not part of
a simple homogeneous market, it may not be possible to shift the scale
of production. For example, if a plant provides foundry products to
others in the same city, it may not be able to readily expand its scale
of production. In general, ``[w]hen an industry is subjected to a
higher cost, it does not simply swallow it; it raises its price and
reduces its output, and in this way shifts a part of the cost to its
consumers and a part to its suppliers,'' in the words of the court in
American Dental Association v. Secretary of Labor (984 F.2d 823, 829
(7th Cir. 1993)).
    The court's summary is in accord with microeconomic theory. In the
long run, firms can remain in business only if their profits are
adequate to provide a return on investment that ensures that investment
in the industry will continue. As technology and costs change, however,
the long-run demand for some products naturally increases and the long-
run demand for other products naturally decreases. In the face of
additional compliance costs (or other external costs), firms that
otherwise have a profitable line of business may have to increase
prices to stay viable. Increases in prices typically result in reduced
quantity demanded, but rarely eliminate all demand for the product.
Whether this decrease in the total production of goods and services
results in smaller output for each establishment within the industry,
or the closure of some plants within the industry; a reduced number of
new establishments entering the industry; or a combination of the
three, is dependent on the cost and profit structure of individual
firms within the industry.
    If demand is perfectly inelastic (i.e., the price elasticity of
demand is zero), then the impact of compliance costs that are 1 percent
of revenues for each firm in the industry would result in a 1 percent
increase in the price of the product, with the quantity demanded
constant. (This outcome would hold in the long run, regardless of type
of costs, but in the short run would hold with certainty only if
compliance costs are strictly variable.) Such a scenario represents an
extreme case, but might be observed in situations in which there were
few if any substitutes for the product in question, or if the products
of the affected sector account for only a very small portion of the
revenue or income of its customers. Under this scenario, both profits
and output of the industry would be unaffected, but customers would be
worse off.
    If the demand is perfectly elastic (i.e., the price elasticity of
demand is infinitely large), then no increase in price is possible and
before-tax profits would be reduced by an amount equal to the costs of
compliance (net of any cost savings--such as reduced workers'
compensation insurance premiums--resulting from the final standard) if
the industry attempted to maintain production at the same level. Under
this scenario, if the costs of compliance are such a large percentage
of profits that some or all plants in the industry could no longer
operate with the hope of an adequate return on investment, then some or
all of the firms would close. Similarly, if compliance costs are fixed,
such costs may result in premature closures or reduced entry into the
market in some circumstances.
    A commonly discussed intermediate case would be a price elasticity
of demand of one.\53\ In this scenario, if the costs of compliance
amount to 1 percent of revenues, then production would decline by 1
percent and prices would rise by 1 percent. (As before, this outcome
would hold in the long run, regardless of type of costs, but in the
short run would hold with certainty only if compliance costs are
variable.) Under this scenario, and if marginal costs of the regulation
fall proportionally with output, then industry revenues would remain
the same, with somewhat lower production, but with similar profit
rates. Customers would, however, receive less of the product for their
(same) expenditures, and firms would have lower total profits; this, as
the court described in Am. Dental Ass'n v. Sec'y of Labor, 984 F.2d 823
(7th Cir. 1993), is the more typical case.
---------------------------------------------------------------------------

    \53\ Here and throughout this section, the price elasticity of
demand is reported as an abosulte value.
---------------------------------------------------------------------------

    A decline in output as a result of an increase in price may occur
in a variety of ways: Individual establishments could each reduce their
levels of production; some marginal plants could close; or, in the case
of an industry with high turnover of establishments, new entry may be
delayed until demand equals supply. In many cases a decrease in overall
output for an industry will be a combination of all three kinds of
reductions. Which possibility is most likely depends on the rate of
turnover in the industry and on the form that the costs of the
regulation take.
    When turnover in an industry is high, or an industry is expanding
rapidly, then the key issue is the long run costs as determined by the
cost of entry into the industry. For example, if there is annual
turnover in an industry of ten percent per year, and a price elasticity
of one, then a single year without new entry would result in a price
rise of ten percent. Such a rise would be more than enough to
compensate existing employers for a cost increase of one percent of
revenues. If the costs are variable costs (i.e., costs that vary with
the level of production at a facility), then economic theory suggests
that any reductions in output will take the form

of reductions in output at each affected facility, with few, if any,
plant closures. If the costs of a regulation primarily take the form of
fixed costs (i.e., costs that do not vary with the level of production
at a facility), and assuming perfect competition, then reductions in
overall output are more likely to can only take the form of plant
closures or delays in new entry. Most of the costs of this regulation,
as estimated in Chapter V of the FEA, are variable costs. Almost all of
the major costs of program elements, such as medical surveillance and
training, will vary in proportion to the number of employees (which is
a rough proxy for the amount of production). Exposure monitoring costs
will vary with the number of employees, but do have some economies of
scale to the extent that a larger firm need only conduct representative
sampling rather than sample every employee. The costs of engineering
controls in construction also vary by level of production because
almost all necessary equipment can readily be rented and the
productivity costs of using some of these controls vary proportionally
to the level of production. Finally, the costs of operating engineering
controls in general industry (the majority of the annualized costs of
engineering controls are in general industry) vary by the number of
hours the establishment works, and thus vary by the level of production
and are not fixed costs in the strictest sense.
    This leaves two kinds of costs that are, in some sense, fixed
costs--capital costs of engineering controls in general industry and
certain initial costs that new entrants to the industry will not have
to bear.
    Fixed costs in the form of capital costs of engineering controls in
general industry and maritime due to this standard are relatively small
as compared to the total costs, representing less than 21 percent of
total annualized costs and approximately $1,019 per year per affected
establishment in general industry.
    There are some initial fixed costs in the sense that they might
only be borne by firms in the industry today. For example, costs for
general training not currently required and initial costs of medical
surveillance may not be borne by establishments new to the industry to
the extent they can hire from a workforce that may have already had
this training and/or initial medical surveillance. An initial thorough
facility cleaning is not a cost a new establishment would need to bear.
These costs will disappear after the initial year of the standard and
thus would be difficult to pass on. These costs, however, represent
less than two percent of total costs and less than $58 per affected
establishment. These initial fixed costs that may be borne by firms in
the affected industries today, together with capital costs, give a
total fixed cost of approximately 22 percent of total annual costs.
    Because the remaining three-fourths of the total annual costs are
variable, OSHA expects it is somewhat more likely that reductions in
industry output resulting from the increase in costs associated with
this rule will be met by reductions in output at each affected facility
rather than as a result of plant closures or reduced new entry.
However, closures of some marginal plants or poorly performing
facilities are always possible. To determine whether a rule is
economically feasible, OSHA begins with two screening tests to consider
minimum threshold effects of the rule under two extreme cases: (1) All
costs are passed through to customers in the form of higher prices
(consistent with a price elasticity of demand of zero), and (2) all
costs are absorbed by the firm in the form of reduced profits
(consistent with an infinite price elasticity of demand).
    In the former case, the immediate impact of the rule would be
observed in increased industry revenues. While there is no hard and
fast rule, in the absence of evidence to the contrary, OSHA generally
considers a standard to be economically feasible for an industry when
the annualized costs of compliance are less than a threshold level of
one percent of annual revenues. Retrospective studies of previous OSHA
regulations have shown that potential impacts of such a small magnitude
are unlikely to eliminate an industry or significantly alter its
competitive structure,\54\ particularly since most industries have at
least some ability to raise prices to reflect increased costs and, as
shown in the FEA, normal price variations for products typically exceed
three percent a year.\55\ Of course, OSHA recognizes that even when
costs are within this range, there could be unusual circumstances
requiring further analysis.
---------------------------------------------------------------------------

    \54\ See OSHA's Web page, http://www.osha.gov/dea/lookback.html#Completed, for a link to all completed OSHA lookback
reviews.
    \55\ See, for example, Table VI-3 and the accompanying text
presented in Chapter VI of the FEA.
---------------------------------------------------------------------------

    In the latter case, the immediate impact of the rule would be
observed in reduced industry profits. OSHA uses the ratio of annualized
costs to annual profits as a second check on economic feasibility.
Again, while there is no hard and fast rule, in the absence of evidence
to the contrary, OSHA generally considers a standard to be economically
feasible for an industry when the annualized costs of compliance are
less than a threshold level of ten percent of annual profits. In the
context of economic feasibility, the Agency believes this threshold
level to be fairly modest, given that normal year-to-year variations in
profit rates in an industry can exceed 40 percent or more.\56\ OSHA's
choice of a threshold level of ten percent of annual profits is low
enough that even if, in a hypothetical worst case, all compliance costs
were upfront costs, then upfront costs would still equal 88.5 percent
of profits using a three percent discount rate (see section Normal
Year-to-Year Variations in Prices and Profit Rates below) and thus
would be affordable from profits alone without the need for an employer
to resort to credit markets. If the threshold level were first-year
costs of ten percent of annual profits, firms could even more easily
expect to cover first-year costs at the threshold level out of current
profits without having to access capital (including credit markets)
markets and otherwise being threatened with short-term insolvency.
---------------------------------------------------------------------------

    \56\ See, for example, Table VI-5 and the accompanying text
presented in Chapter VI of the FEA.
---------------------------------------------------------------------------

    In general, it is usually the case that firms would be able to pass
on some or all of the costs of the rule to their customers in the form
of higher prices. OSHA therefore will tend to give much more weight to
the ratio of industry costs to industry revenues than to the ratio of
industry costs to industry profits. However, if costs exceed either the
threshold percentage of revenue or the threshold percentage of profits
for an industry, or if there is other evidence of a threat to the
viability of an industry because of the standard, OSHA will examine the
effect of the rule on that industry more closely. Such an examination
would include market factors specific to the industry, such as normal
variations in prices and profits, international trade and foreign
competition, and any special circumstances, such as close domestic
substitutes of equal cost, which might make the industry particularly
vulnerable to a regulatory cost increase.
    The preceding discussion focused on the economic viability of the
affected industries in their entirety. However, even if OSHA found that
a final standard did not threaten the survival of affected industries,
there is still the question of whether the industries' competitive
structure would be significantly altered. For example, if the

annualized costs of an OSHA standard were equal to ten percent of an
industry's annual profits, and the price elasticity of demand for the
products in that industry were equal to one, then OSHA would not expect
the industry to go out of business. However, if the increase in costs
were such that most or all small firms in that industry would have to
close, it could reasonably be concluded that the competitive structure
of the industry had been altered. For this reason, OSHA also examines
the differential costs by size of establishment.
Public Comments on OSHA's Approach to Economic Feasibility
    Some commenters were concerned that reductions of profits of less
than ten percent could still represent major losses to an employer. For
example, one commenter said:

    The proposed rule states that in no cases will the amount of
revenue or profits exceed 8.8% noting that this number is easily
passed to consumers in the form of increased product and service
costs. For a rule as specific and slight as one affecting only
silica dust inhalation, a reduction in profits by 8.8% should give
the government pause (Document ID 2189, p. 1).

    Another commenter expressed similar concerns about a reduction in
profits of 4.8 percent (Document ID 1882, Attachment 1, p. 2). OSHA is
not dismissive of losses in profits of less than ten percent. However,
such losses need to be weighed against the OSH Act's objectives of
occupational safety and health. For purposes of assessing economic
feasibility, OSHA needs to be concerned with major dislocating effects
on entire industries, which will not be the result of relatively small
changes in profits. Further, as will be discussed below, these costs
can likely be passed on to consumers.
    API/IPAA, while disagreeing with OSHA's cost estimates,
acknowledged that OSHA's use of the rules of thumb of ten percent of
profits or one percent of revenues has been upheld in court (Document
ID 2301, Attachment 1, pp. 62-63).
    Some commenters were also concerned that OSHA's screening analysis
methodology did not give adequate consideration to upfront costs
(Document ID 2379, Attachment 3, p. 39; 2119, Attachment 3, p. 22). As
will be discussed below, OSHA's choice of a threshold level of ten
percent of annual profits is low enough that even if, in a hypothetical
worst case, all compliance costs were upfront costs, then upfront costs
would still equal 88.5 percent of profits and thus would be affordable
from profits alone without needing to resort to credit markets. (If the
cost exceeds 100 percent of profits then the company would have to
borrow to pay the balance. Otherwise the firm will not have to borrow
but could finance the cost internally.)
    While not specifically addressed to the issue of the screening
analysis, Mr. Sessions provided some estimates of how various
percentage cost increases might interact with demand and supply
elasticities to produce estimates of declines in total industry output.
His estimates show that the decline in total revenues (and, in this
situation, total production) associated with increased costs of one
percent of revenues ranges from zero to 0.83 percent of total
production (the range depending on the elasticities of supply and
demand, with the highest impact on total revenues associated with a
very unlikely price elasticity of ten) (Document ID 4231, Attachment 1,
p. 31). Even the largest decline in revenues would result in only a
0.83 percent decline in revenues, which would not represent a major
dislocation of any affected industry. While OSHA does not necessarily
endorse this particular approach to calculating changes in total
revenue for given percentage change in costs, the calculation confirms
OSHA's general view that increases of less than one percent of costs do
not render a standard economically infeasible.
    After reviewing these comments, OSHA has decided to retain its
screening test of ten percent of profits and one percent of revenues as
levels below which significant dislocation of an industry is extremely
unlikely.
b. Regulatory Flexibility Screening Analysis
    The Regulatory Flexibility Act (RFA), Public Law 96-354, 94 Stat.
1164 (codified at 5 U.S.C. 601), requires Federal agencies to consider
the economic impact that a final rulemaking will have on small
entities. The RFA states that whenever an agency ``promulgates a final
rule under section 553 of this title, after being required by that
section or any other law to publish a general notice of proposed
rulemaking, the agency shall prepare a final regulatory flexibility
analysis'' (FRFA). 5 U.S.C. 604(a). Pursuant to section 605(b), in lieu
of an FRFA, the head of an agency may certify that the final rule will
not have a significant economic impact on a substantial number of small
entities. A certification must be supported by a factual basis. If the
head of an agency makes a certification, the agency shall publish such
certification in the Federal Register at the time of publication of
general notice of final rulemaking or at the time of publication of the
final rule. 5 U.S.C. 605(b). Thus, if OSHA cannot issue the required
certification, it must prepare a FRFA.
    OSHA makes its determination about whether it can issue the
required certification by applying screening tests to consider minimum
threshold effects of the rule on small entities. These screening tests
are similar in concept to those OSHA described above to identify
minimum threshold effects for the purposes of demonstrating economic
feasibility and are discussed below.
    There are, however, two differences. First, for each affected
industry, the screening tests are applied, not to all establishments,
but to small entities (defined as ``small business concerns'' by the
Small Business Administration (SBA)) and also to very small entities
(as defined by OSHA as small businesses with fewer than 20 employees).
Second, although OSHA's regulatory flexibility screening test for
revenues also uses a minimum threshold level of annualized costs equal
to one percent of annual revenues, OSHA has established a minimum
threshold level of annualized costs equal to five percent of annual
profits for the average small entity or very small entity (rather than
the ten percent threshold applicable for general economic feasibility
screening). The Agency has chosen a lower minimum threshold level for
the profitability screening analysis and has applied its screening
tests to both small entities and very small entities in order to ensure
that certification will be made, and an FRFA will not be prepared, only
if OSHA can be highly confident that a final rule will not have a
significant economic impact on a substantial number of small entities
or very small entities in any affected industry.
    OSHA has prepared separate regulatory flexibility screening tests
for general industry, maritime, and construction.
2. Impacts in General Industry and Maritime
    In this section, OSHA will determine whether (1) the rule is
economically feasible for all affected industries in general industry
and maritime, and (2) the Agency can certify that the rule will not
have a significant economic impact on a substantial number of small
entities in general industry and maritime. OSHA concludes that the rule
is economically feasible, but the Agency is unable to certify that it
will not have a significant economic impact on a substantial number of
small entities.

a. Economic Feasibility Screening Analysis: All Establishments
    Earlier chapters of the FEA identified the general industry and
maritime sectors potentially affected by the final rule; presented
summary profile data for affected industries, including the number of
affected entities and establishments, the number of at-risk workers,
and the average revenue for affected entities and establishments; and
developed estimates, by affected industry, of the costs of the rule.
The economic impacts of the final rule on general industry and maritime
are driven, in part, by the costs of additional dust control measures,
respirators, and silica program activities needed to comply with the
rule.
    To determine whether the final rule's projected costs of compliance
would threaten the economic viability of affected industries; OSHA
first compared, for each affected industry, annualized compliance costs
to annual revenues and profits per (average) affected establishment.
The results for all affected establishments in all affected industries
in general industry and maritime are presented in Table VII-18, using
annualized costs per establishment for the PEL of 50 [mu]g/m\3\. Shown
in the table for each affected industry are total annualized costs, the
total number of affected establishments, annualized costs per affected
establishment, annual revenues per establishment, the profit rate,
annual profits per establishment, annualized compliance costs as a
percentage of annual revenues, and annualized compliance costs as a
percentage of annual profits.
    The annualized costs per affected establishment for each affected
industry were calculated by distributing the industry-level
(incremental) annualized compliance costs among all affected
establishments in the industry, where annualized compliance costs
reflect a three percent discount rate. The annualized cost of the rule
for the average establishment in all of general industry and maritime
is estimated to be $4,939 in 2012 dollars. It is clear from Table VII-
18 that the estimates of the annualized costs per affected
establishment in general industry and maritime vary widely from
industry to industry. These estimates range from $220,558 for NAICS
213112 (Support Activities for Oil and Gas Operations) and $57,403 for
NAICS 331511 (Iron Foundries) to $304 for NAICS 621210 (Offices of
Dentists) and $377 for NAICS 324121 (Asphalt Paving Mixture and Block
Manufacturing).
    Table VII-18 also shows that, within the general industry and
maritime sectors, there are no industries in which the annualized costs
of the final rule exceed 1 percent of annual revenues and there are
eight industries in which the annualized costs of the rule exceed ten
percent of annual profits and none where annualized costs exceed one
percent of annual revenues. NAICS 213112 (Support Activities for Oil
and Gas Operations), has the highest cost impact as a percentage of
revenues, of 0.56 percent. NAICS 327120 (Clay Building Material and
Refractories Manufacturing) has the highest cost impact as a percentage
of profits, of 31.08 percent. For all affected establishments in
general industry and maritime, the estimated annualized cost of the
rule is, on average, equal to 0.06 percent of annual revenue and 2.43
percent of annual profits.
    The industries with costs that exceed ten percent of profits are:
NAICS 327110--Pottery, Ceramics, and Plumbing Fixture Manufacturing, 31
percent; NAICS 327120--Clay Building Material and Refractories
Manufacturing, 31 percent; NAICS 327991--Cut Stone and Stone Product
Manufacturing, 24 percent; NAICS 327390--Other Concrete Product
Manufacturing, 17 percent; NAICS 327999--All Other Miscellaneous
Nonmetallic Mineral Product Manufacturing, 16 percent; NAICS 327332--
Concrete Pipe Manufacturing, 13 percent; NAICS 327331 Concrete Block
and Brick Manufacturing, 13 percent; and NAICS 327320 Ready-Mix
Concrete Manufacturing, 10 percent.
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BILLING CODE 4510-26-C
b. Normal Year-to-Year Variations in Prices and Profit Rates
    The United States has a dynamic and constantly changing economy in
which an annual percentage changes in industry revenues or prices of
one percent or more is common. Examples of year-to-year changes in an
industry that could cause such variations in revenues or prices include
increases in

fuel, material, real estate, or other costs; tax increases; and shifts
in demand.
Methodology
    To demonstrate the normal year-to-year variation in prices for all
the manufacturers in general industry and maritime affected by the
rule, OSHA developed in the FEA year-to-year producer price indices and
year-to-year percentage changes in producer prices, by industry, for
the years 2004 through 2014. As shown in Table VI-3 in the FEA, for the
combined affected manufacturing industries in general industry and
maritime over the 12-year period, the average change in producer prices
was 2.7 percent a year. For the industries in general industry and
maritime with the largest estimated potential annual cost impact as a
percentage of revenue--NAICS 213112--Support Activities for Oil and Gas
Operations, 0.56 percent; and NAICS 327991--Cut Stone and Stone Product
Manufacturing, 0.42 percent--the average annual changes in producer
prices in these industries over the 12-year period were, respectively,
3.8 percent, and 0.5 percent.
    Based on these data, it is clear that the potential cost impacts of
the final rule in general industry and maritime are all well within
normal year-to-year variations in prices in those industries. The
maximum cost impact of the rule as a percentage of revenue in any
affected industry is 0.56 percent, while the average annual change in
producer prices for affected industries was 2.7 percent for the period
2004 through 2014 (changed from 1998 to 2009 in the PEA). Furthermore,
even a casual examination of Table VI-3 of the FEA reveals that annual
changes in producer prices in excess of five or even ten percent are
possible without threatening an industry's economic viability. Thus,
OSHA concludes that the potential price impacts of the final rule would
not threaten the economic viability of any industries in general
industry and maritime.
    Changes in profit rates are also subject to the dynamics of the
U.S. economy. A recession, a downturn in a particular industry, foreign
competition, or the increased competitiveness of producers of close
domestic substitutes are all easily capable of causing a decline in
profit rates in an industry of well in excess of ten percent in one
year or for several years in succession.
    To demonstrate the normal year-to-year variation in profit rates
for all the manufacturers in general industry and maritime affected by
the rule, OSHA in the FEA developed Table VI-4 and Table VI-5, which
show, respectively, year-to-year profit rates and year-to-year
percentage changes in profit rates, by industry, for the years 2000
through 2012. For the combined affected manufacturing industries in
general industry and maritime over the thirteen-year period, OSHA
calculated an average change in profit rates of 138.5 percent a year
(average for all industries calculated from the per-NAICS averages
shown in Table VI-5 in the FEA). For the industries in general industry
and maritime with the largest estimated potential annual cost impacts
as a percentage of profit--NAICS 327120--Clay Building Material and
Refractories Manufacturing, 31 percent; NAICS 327110--Pottery,
Ceramics, and Plumbing Fixture Manufacturing, 31 percent; and NAICS
327991--Cut Stone and Stone Product Manufacturing, 24 percent--the
average annual percentage changes in profit rates in these industries
over the 13-year period were, respectively, 951 percent, 951 percent,
and 113 percent.
    One complicating factor is that the annualized costs of the rule,
if absorbed in lost profits, would involve not just a temporary loss of
profits but a longer term negative effect on profits relative to the
baseline. To address this issue, the Agency compared the effect of a
longer term reduction in profits to much larger reductions in profits
but over shorter periods. Assuming a three-percent discount rate, the
Agency determined a ten percent decline in profit rates relative to the
original baseline, which remains constant at that lower level over a
ten-year period, would be equivalent to: \57\
---------------------------------------------------------------------------

    \57\ Note that the reduction in profits rates over time, as a
result of the rule, is being measured here relative to the baseline.
If the reduction in profit rates were made relative to the previous
year, as is done in Table VI-5 in the FEA, then there would be only
a one-time reduction in the profit rate in year one as a result of
the rule, after which the profit rate would reach a new (lower)
level but would not change from year to year.
---------------------------------------------------------------------------

     An 88.5 percent decline in profit rates for one year;
     a 44.5 percent decline in profit rates that remains
constant at the lower level for two years; or
     a 30 percent decline in profit rates that remains constant
at the lower level for three years.\58\
---------------------------------------------------------------------------

    \58\ Assuming a seven-percent discount rate, a ten-percent
decline in profit rates over the ten-year annualization period would
be equivalent to: A 75-percent decline in profit rates for one year;
a 39-percent decline in profit rates that remains constant at the
lower level for two years; or a 27-percent decline in profit rates
that remains constant at the lower level for three years.
---------------------------------------------------------------------------

    An examination of Table VI-5, for the thirteen year period from
2000 to 2012, clearly shows that short-run changes in average industry
profit rates of the above magnitudes have occurred on numerous
occasions in general industry and maritime, without threatening the
economic viability of the affected industries. For this reason, OSHA is
confident that potential profit rate impacts of ten percent or less as
a result of the rule would not threaten the economic viability of the
affected industries in general industry and maritime.
    A longer-term loss of profits in excess of ten percent a year could
be more problematic for some affected industries and might conceivably,
under sufficiently adverse circumstances, threaten an industry's
economic viability. In OSHA's view, however, affected industries would
generally be able to pass on most or all of the costs of the final rule
in the form of higher prices rather than bear the costs of the final
rule in reduced profits. In other words, the demand for the goods and
services produced by affected industries in general industry and
maritime do not appear to be perfectly elastic or close to it. While
there are substitutes for these products, there are no perfect
substitutes that would lead the price elasticity to be extremely high.
As a result, the demand for quantities of brick and structural clay,
vitreous china, ceramic wall and floor tile, other structural clay
products (such as clay sewer pipe), and the various other products
manufactured by affected industries would not significantly contract in
response to a 0.48 percent (or lower) price increase for these
products. It is of course possible that such price changes will result
in some reduction in output, and the reduction in output might be met
through the closure of a small percentage of the plants in the
industry. However, the only realistic circumstance under which an
entire industry would be significantly affected by small price
increases would be the availability in the market of a very close or
perfect substitute product not subject to OSHA regulation. The classic
example, in theory, would be foreign competition. In the following
discussion OSHA examines the threat of foreign competition for affected
U.S. establishments in general industry and maritime and concludes that
it is unlikely to threaten the viability of any affected industry.
Public Comments on Year-to-Year Variations in Prices and Profit Rates
    The American Chemistry Council (ACC) stated, with respect to a
similar analysis in the PEA, that short-term volatility within an
industry sector is of little value in projecting what will

happen when a new regulation resets the baseline for profits and
revenue because OSHA is comparing short-term changes to long-term
changes (Document ID 2307, Attachment 2, p. 196). Another commenter
made the similar point that year-to-year fluctuations cannot be
compared to long-term changes (Document ID 2308, Attachment 9, p. 7).
    OSHA first examines the issue of changes in prices over time. Such
changes, on the whole, represent pass through of changes in costs,
since profits are not continually rising. These changes in costs are
not ``fluctuations'' with upward and downward shifts in prices. For
almost all industries these changes in costs are continuing upward
shifts that average each year much larger changes than the maximum
price change any industry will need to incur in order to comply with
the silica rule.
    For variations in profits, these are indeed fluctuations and
profits do indeed both rise and fall. However, if, as the commenters
argue only long-term average profits matter, then we could reach the
very counterintuitive result that there should be no excess plant
closures during recessions. This is not the case because long-term
profits are, in fact, nothing more than a prediction and the present
value of long term profits will be different at the beginning than at
the end of a recession. Recognizing these timing effects is why OSHA
examined the annualized value of losses in profits associated with the
recession beginning 2008 and compared it to the annualized value of the
loss in profits as result of costs of this standard. While temporary
and permanent losses are different, the use of discounting enables us
to compare short- and long-term losses.
c. International Trade Effects
    The magnitude and strength of foreign competition is an important
factor in determining the ability of firms in the U.S. to pass on (part
or all of) the costs of the rule in the form of higher prices for their
products. If firms are unable to do so, they must absorb the costs of
the rule out of profits, possibly resulting in the business failure of
individual firms or even, if the cost impacts are sufficiently large
and pervasive, causing significant dislocations within an affected
industry.
    As in the PEA, OSHA in the final economic analysis examined how
likely such an outcome is. The analysis there included a review of
trade theory and empirical evidence and the estimation of impacts.
Throughout, the Agency drew on ERG (2007c) (Document ID 1710), which
was prepared specifically to help analyze the international trade
impacts of OSHA's final silica rule. A summary of the FEA results is
presented below.
    OSHA focused its analysis on eight of the industries likely to be
most affected by the final silica rule and for which import and export
data were available. OSHA combined econometric estimates of the
elasticity of substitution between foreign and domestic products,
Annual Survey of Manufactures data, and assumptions concerning the
values for key parameters to estimate the effect of a range of
hypothetical price increases on total domestic production. In
particular, OSHA estimated the domestic production that would be
replaced by imported products and the decrease in exported products
that would result from a 1 percent increase in prices--under the
assumption that firms would attempt to pass on all of a 1 percent
increase in costs arising from the final rule. The sum of the increase
in imports and decrease in exports represents the total loss to
industry attributable to the rule. These projected losses are presented
as a percentage of baseline domestic production to provide some context
for evaluating the relative size of these impacts.
    The effect of a 1 percent increase in the price of a domestic
product is derived from the baseline level of U.S. domestic production
and the baseline level of imports. The baseline ratio of import values
to domestic production for the eight affected industries ranges from
0.04 for iron foundries to 0.547 for ceramic wall and floor tile
manufacturing--that is, baseline import values range from 4 percent to
more than 50 percent of domestic production in these eight industries.
OSHA's estimates of the percentage reduction in U.S. production for the
eight affected industries due to increased domestic imports (arising
from a 1 percent increase in the price of domestic products) range from
0.013 percent for iron foundries to 0.237 percent for cut stone and
stone product manufacturing.
    OSHA also estimated the baseline ratio of U.S. exports to
consumption in the rest of the world for the sample of eight affected
industries. The ratios range from 0.001 for other concrete
manufacturing to 0.035 percent for nonclay refractory manufacturing.
The estimated percentage reductions in U.S. production due to reduced
U.S. exports (arising from a 1 percent increase in the price of
domestic products) range from 0.014 percent for ceramic wall and floor
tile manufacturing to 0.201 percent for nonclay refractory
manufacturing.
    The total percentage change in U.S. production for the eight
affected industries is the sum of the loss associated with increased
imports and the loss resulting from reduced exports. The total
percentage reduction in U.S. production arising from a 1 percent
increase in the price of domestic products range from a low of 0.085
percent for other concrete product manufacturing to a high of 0.299
percent for porcelain electrical supply manufacturing.
    These estimates suggest that the final rule would have only modest
international trade effects. It was previously hypothesized that if
price increases resulted in a substantial loss of revenue to foreign
competition, then the increased costs of the final rule would have to
come out of profits. That possibility has been contradicted by the
results reported in this section. The maximum loss to foreign
competition in any affected industry due to a 1 percent price increase
was estimated at approximately 0.3 percent of industry revenue.
Because, as reported earlier in this section, the maximum cost impact
of the final rule for any affected industry would be 0.56 percent of
revenue, this means that the maximum loss to foreign competition in any
affected industry as a result of the final rule would be 0.2 percent of
industry revenue --which would hardly qualify as a substantial loss to
foreign competition. This analysis cannot tell us whether the resulting
change in revenues will lead to a small decline in the number of
establishments in the industry or slightly less revenue for each
establishment. However it can reasonably be concluded that revenue
changes of this magnitude will not lead to the elimination of
industries or significantly alter their competitive structure.
    Based on the Agency's preceding analysis of economic impacts on
revenues, profits, and international trade, along with the discussion
of industry concerns below, OSHA concluded that the annualized costs of
the final rule are below the threshold level that could threaten the
economic viability of any industry in general industry or maritime.
OSHA further noted that while there would be additional costs (not
attributable to the final rule) for some employers in general industry
and maritime to come into compliance with the new silica standard,
these costs would not affect the Agency's determination of the economic
feasibility of the final rule.

Public Comment on International Trade Effects
Foundries
    The following comments discuss the loss of business to foreign
competition in the foundry industry. The comments have been grouped
together by issue and are followed by OSHA's response. The first group
of commenters used impact numbers from an alternative cost model to
discuss the loss of business to foreign competition.
    The United States Chamber of Commerce (``the Chamber'') stated that
additional costs of the rule's ancillary provisions along with
engineering controls will result in reduced competitiveness relative to
foreign foundries (Document ID 2288, pp. 27-28). The Chamber also
critiqued OSHA's inability to determine feasibility because of a lack
of data to analyze economic impacts across facilities by age, design,
operations, condition and region (Document ID 2288, pp. 29-30).
    In the comments above, the negative economic effect of losing
business to foreign competition is based on an alternative cost model
report prepared for the American Foundry Society (AFS) by Environomics.
This report is addressed in the Engineering Control Costs section in
Chapter V of the FEA, where OSHA concluded that the costs in that
report were inflated. Because these inflated costs also underpin the
Chamber's claim that the rule will reduce competitiveness with foreign
foundries, OSHA does not accept that claim. In response to the
Chamber's criticism of OSHA's data sources, the Agency notes that
Chapter III, the section on Survey Data and OSHA Economic Analyses,
discusses why it was infeasible to collect and compile a full-scale
national survey of the kinds of baseline conditions and practices that
the Chamber of Commerce urged OSHA to consider.
    The following comments from foundry firms and associations address
foreign competition in metalcasting from China and India along with the
inability to pass the cost on to their customers.
    AFS submitted comments that the metalcasting industry would lose
business to foreign competition as follows:

    Many foundries have closed in recent years with foreign
competition assuming much of that business. Five of the eleven
identifiable foundries used in the PEA to support OSHA's assertion
of feasibility have closed. Because castings are the starting point
of many manufacturing processes, loss of foundry jobs also means
loss of other manufacturing jobs.
    The U.S. metalcasting industry is made up of 1,978 facilities,
down from 2,170 five years ago. This reduction can be attributed to
the recession, technological advancements, foreign competition and
tightening regulations (Document ID 2379, Attachment 3, p. 42; 4035,
p. 5).

    The Indiana Cast Metals Association concurred with these comments
and also suggested that other industries would also be negatively
impacted if U.S. foundries shut down (Document ID 2049, p. 1). The Ohio
Cast Metals Association submitted two comments stating that the rule
will increase costs and undermine the Ohio-based metalcasting
industry's ability to compete in the global marketplace:

    [The silica rule] will significantly increase costs, slow down
or eliminate hiring, reduce the number of foundry jobs and undermine
our industry's ability to compete in the global marketplace. For
some foundries, the rulemaking could be the final straw that
destroys their business.
    . . . Over the past two decades Ohio foundries along with other
manufacturers throughout the United States have faced tremendous
international competition from China, Brazil, and India and many
foundries have closed and thousands of employees have lost their
jobs during this period. To suggest that Ohio foundries can just
pass on the tremendous costs associated with compliance with the
proposed silica rule with ``minimal loss of business to foreign
competition'' indicates that the individuals performing this
analysis were driven by other agendas or misinformed (Document ID
2119, Attachment 3, pp. 1-2).

    Grede Holdings L.L.C. submitted a comment expressing its view that
it would be difficult for foundries to pass the cost of compliance to
the customer because of international competition, and that the number
of foundries in the U.S. has dropped by more than half since 1980,
going from 4,200 foundries to 2,050 foundries (Document ID 2298, p. 3).
    Sawbrook Steel submitted two comments voicing concern that the
implementation of the regulation will cause jobs to move overseas,
resulting in a shrinking of the domestic casting manufacturing
(Document ID 2227, p. 2; 1995, p. 1).
    In the comments above, businesses and associations state that the
costs of the rule will be too high and they will lose business to
foreign competition. The chief advantage of foreign imports to
downstream users, as reported to the U.S. International Trade
Commission (ITC) during an investigation they conducted into the
competitive conditions in the U.S. foundry market, is their low
pricing. Respondents to the investigations said the cost of foreign
produced products ranged from ten percent to forty percent less than
the cost of U.S. products (Document ID 0753, table 5-60, p. 5-53 as
referenced in Document ID 1710, pp. 5-4). U.S. producers have responded
to competition with a broad array of initiatives, such as implementing
lean manufacturing, improving customer service, and increasing
automation (Document ID 0753, pp. 10-14 and 10-15). According to the
ITC study:

    The use of technology may also be influenced by the type of
castings produced and relative wage rates. Low-value, low-quality
castings, for example, generally require a lower level of technology
and relatively more semi-skilled labor than foundries producing more
complex castings. To lower labor costs, foundries in developed
countries with higher wage rates may install more automation and
technological improvements, whereas foundries in developing
countries with relatively lower wage rates may substitute labor for
relatively high-cost capital investments (Document ID 0753, p. 2-
11).

    Before addressing issues on international competition for
metalcasters, it should be noted that all foundry industries affected
by this rule are below the ten percent cost to profit threshold and one
percent cost to revenue threshold. This means that even if the argument
that costs cannot be passed on were to be correct, the loss in profits
would be less than ten percent and unlikely to effect the feasibility
of the industry. Further the costs to be passed on would require less
than one percent price increases. In general, metalcasters in the U.S.
have shortened lead times, improved productivity through computer
design and logistics management, provided expanded design and
development services to customers, and provided a higher quality
product than foundries in China and other nations where labor costs are
low (Document ID 0753, p. 3-12). All of these measures, particularly
the higher quality of many U.S. metalcasting products and the ability
of domestic foundries to fulfill orders quickly, are substantial
advantages for U.S. metalcasters that may outweigh the very modest
price increases projected in Tables VI-3 and VI-4 of the FEA (Document
ID 1710, p. 5-4). According to the ITC study, quality was the number
one purchasing decision factor for the majority of purchasers, with
price and lead times ranking lower, and U.S. metalcasters are able to
deliver that quality (Document ID 0753, p. 4-5). The ITC report noted:

    Certain purchasers noted that when inventory management and
complex manufacturing skills are required, U.S. foundries excel.
U.S. foundries were also cited by responding U.S. purchasers as
manufacturing with a low defect (rejection) rate. (Id.)

    Purchaser responses to the ITC's survey stated that some U.S.
foundries are also completely inoculated against foreign competition,
even if the prices of U.S. foundry products rise:

    As noted in questionnaire responses, certain purchasers are
committed to buying solely U.S.-made castings. One U.S. foundry
official noted that if downstream customers require castings to be
made in the United States, then U.S. foundries are guaranteed that
business. This situation often occurs when foundries supply castings
for federally funded operations, such as construction projects
(Document ID 0753, p. 4-5).

    Foundries in China and India, while expanding their capacities, are
also faced with rising domestic demand due to their own rapidly
expanding domestic industrial economies, which affect their ability to
fulfill export demand (Document ID 0753, p. 5-16). ERG's research noted
a growth in U.S. foundry exports, which could help to offset some of
the foreign imports entering the U.S. market. According to one report
cited by ERG, U.S. foundry exports were roughly equivalent to 53
percent of the imports (Document ID 1710, p. 5-5).
    ERG's research also provided some evidence that the combination of
U.S. and foreign demand for metalcasting may outstrip the supply to
such a degree that, even if the U.S. foundries operated at full
capacity, their maximum output would fail to meet the demand from the
U.S. and foreign markets (Document ID 1710, p. 5-5). The U.S. foundry
industry is unlikely to face any significant economic impacts if there
is ample demand and a limited supply because such a condition makes it
easier to pass along any costs of the rule.
Tile Production
    The following comments discuss the difficulties of competing with
foreign tile producers followed by OSHA's response.
    Tile Council of North America (TCNA) noted the import price
sensitivity between domestic tile and imported tile as follows:

    The low cost of imported tile places an enormous burden on U.S.
tile manufacturers to maintain current pricing to remain
competitive. According to the latest data collected by TCNA, the
average price per square foot of U.S. tile shipments is $1.43. The
average price per square foot of Chinese imports is $0.86. With
Chinese imports 60% less expensive than U.S. tile in what is an
extremely price-competitive market, OSHA's claim that ``any price
increases would result in minimum loss of business to foreign
competition'' strains credulity.
    To illustrate the tremendous import/price sensitivity between
domestic tile and imports, we note the increase in imports from Peru
as a result of a bilateral free trade agreement between Peru and the
United States eliminating duty on tile from Peru. Although only
amounting to a price change of 4--5 cents per square foot, from
2008, the year before the bilateral agreement to the end of 2011,
tile imports from Peru into the United States grew by 59%. This
illustrates how even a small change in price due to modest increases
in operating costs and raw material costs pose an existential threat
to the tile manufacturing industry.
    The import sensitivity of domestic tile manufacturing operations
is well known by the United States International Trade Commission
(USITC) and the office of the United States Trade Representative
(USTR). The assertion made by OSHA that cost increases will not
result in lost market share to foreign competition is in direct
conflict with information known by USITC and the USTR and contrary
to established public policy (as reflected in existing Free Trade
Agreements) and industry testimony.
    Contrary to the assertion made by OSHA, the marginal price
increases anticipated by required conformance to the rule as
proposed would make the domestic tile manufacturing industry highly
uncompetitive threatening the very viability of this import-
sensitive industry (Document ID 2363, p. 9).

    The National Tile Contractors Association also questioned OSHA's
preliminary determination that the tile industry could pass on most or
all costs through higher prices, calling the claim ``wildly
erroneous'':

    Implementation of the proposed rule's requirements would
increase both production and installation costs, and would put
pressure on consumer prices. At a time when U.S. consumption of
ceramic tile is more than 25% below its peak level (2006), this is a
serious concern. The U.S. market is already flooded with lower
quality, lower priced imports from many countries that likely do not
respect the health, safety, and rights of workers. The low cost of
imported tile places an enormous burden on U.S. tile manufacturers
to maintain current pricing to remain competitive (Document ID 2267,
p. 8).

    Dal-Tile echoed the TCNA comments regarding the inability to pass
costs onto the customer (Document ID 2147, p. 3).
    OSHA does not dispute the commenters' information indicating that
Chinese and Peruvian tile are significantly cheaper than U.S. tile, but
that point actually undercuts their claim that a small change in the
price of U.S. tile would place an ``enormous burden'' on U.S. tile
manufacturers. The commenters note that Chinese tile is already
available in the U.S. at just over half the price of U.S. tile. If the
market was actually as sensitive as the commenters suggest, and the
Chinese tile was competing for the same market share as U.S. tile,
under the commenter's logic the U.S. tile industry would have already
gone out of business. But that has not happened, suggesting that U.S.
tile manufacturers have been able to identify customers for whom the
tile price is not the predominant factor. Likewise, the example of
Peruvian tile demonstrates only that the lower-priced imported tile is
sensitive to small price changes. The commenter provides no evidence
that the Peruvian tile is competing for the same customers as the U.S.
tile industry.
    In summary, the TCNA's argument that cost increases will result in
lost market share to foreign competition is unconvincing because it is
not clear that there is a strong relationship between the price of the
foreign tile and the price of the U.S. tile. One likely cause for this
disconnect is that, as TCNA notes, the market is ``already flooded with
lower quality, lower priced'' imports (Document ID 2363, p. 8),
suggesting that tile from China, Peru, and the other lower-priced
foreign importers are of a lower quality that may be targeted at a
different customer base than the higher-quality U.S. tile. This
perception that tile from China and other low-cost tile producing
countries may be of lower quality produces an imperfect substitution
scenario and adds to the inelasticity of demand for domestic tiles,
enabling producers to pass some of the costs on to the consumer.
    On the other end of the tile price range are the Italian tiles.
Italy and China are the top countries of origin for tiles imported into
the U.S., but tiles from these countries command very different prices.
In terms of general tile products, one source indicates that the
average prices of tiles imported by the U.S. in 2012 were $20.20 to
$20.90 per square meter for Italian tiles and between $8.30 and $8.70
per square meter for Chinese tiles imported by the U.S., a significant
price difference that could be explained by a difference in
quality.\59\ TCNA stated above that the average price of tile from
China is $0.86 per square foot or $9.25 (10.76 x 0.86) per square
meter. TCNA's average price of American tile is $1.43 per square foot
or $15.39 (10.76 x 1.43) per square meter (Document ID 2363, p. 9),
which shows the U.S. producers to be supplying a mid-priced product.
Although Italy is also a major source of tile imports in the U.S.
despite their higher price, the commenters did not suggest that an
increase in U.S. tile prices would cause the U.S. to lose market share
to the Italian tile; nor did the commenters suggest that lower-priced
U.S. tile could be exported to dominate the Italian market. The
implication is, again, that different

customers are willing to pay different prices for different quality
tile.
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    \59\ http://www.scirp.org/journal/PaperInformation.aspx?PaperID=43515.
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    Using price as an indicator of quality, the tile market can be
segmented into three categories: Low quality, mid-grade, and high
quality. The U.S. tile industry has located a niche between the lowest
quality/lowest priced tile and the highest quality/highest priced tile.
While it is possible that a few tile firms that produce very low-
quality or very high-quality tile may be negatively impacted by an
increase in the price of their tile, OSHA concludes that the majority
of firms would not experience a significant negative economic impact.
This is along with the fact that the increase in price from this rule
is expected to be minimal. TCNA commented that the average price per
square foot of U.S. tile shipments is $1.43. The cost to revenue ratio
for NAICS 327122 Ceramic Wall and Floor Tiles is 0.35 percent, meaning
this final rule will increase the average cost of U.S. tile by five
hundredths of a cent (or $0.0005 per square foot). It is therefore fair
to say this extremely modest increase in the average price of U.S. tile
would not have a significant economic impact on the U.S. tile industry
as a whole.
Brick Industry
    During the public hearing Belden Tri-State Building Materials
stated that the brick industry has foreign competition, mostly from
Canada, and some from Mexico (particularly in Texas, Oklahoma or
Arkansas), and Germany (Document ID 3586, Tr. 3457). They indicated
that their competition includes not only imported brick but also
``other cladding materials like vinyl siding and HardiePlank,'' but the
competition from imported brick is typically ``more expensive brick''
because of ``innovations in Europe that we just haven't caught up to,
different sizes, different colors, different processes'' (Id.).
    Acme Brick Company representatives indicated in testimony that
oversees competition was virtually nonexistent because it is ``hard to
get that across the ocean economically'' and noted that they generally
locate their production facilities strategically to be near their
markets because ``[p]roduction costs really are about a third of the
cost of the brick when we have them close . . . [The] farther away [the
bricks come from]--there are some distinctions in the quality or the
makeup of a brick'' (Document ID 3577, Tr. 736).
    This testimony indicates to OSHA that international competitors
will not be able to take advantage of any potential price increases
made by U.S. producers in the U.S. domestic brick market. The brick
making industry will therefore be able to pass on most, if not all, of
the costs of complying with the rule.
Hydraulic Fracturing
    To determine the economic impacts for most industries, OSHA used
the Census Bureau's Statistics of U.S. Businesses to estimate revenues
on a six-digit NAICS basis but these revenue data were not sufficiently
precise to isolate the hydraulic fracturing component from the larger
industry (NAICS 213112). As a result, instead of using data from the
Economic Census, revenues for hydraulic fracturing firms were based on
estimated utilization rates and per stage revenues. As discussed in
Chapter III of the FEA, Profile of Affected Industries, the data on
this industry have been updated to reflect the comments in the record
and the best data available in 2012. The cost to profit percentage for
the hydraulic fracturing industry estimated in the FEA is 7.67 percent
(below OSHA's ten percent threshold) for fleets of all sizes. The ratio
of costs to revenues for hydraulic fracturing firms in the FEA is
estimated to be 0.54 percent for all establishments in the industry,
0.17 percent for small entities and 0.24 percent for very small
entities. Although the costs as a percent of revenue increased for all
establishments, the impacts still remain well below the one percent
threshold.
    However, these estimates are based on the state of the industry in
the base year of 2012 supplemented with data provided in comments to
the proposed rule in 2013 and early 2014. When the PEA was published in
2006, the price of oil fluctuated between $70 and $80 a barrel. During
the years following the publication of the PEA the price of oil has had
some large fluctuations. Before the recession of 2008 the price of oil
peaked at $146 per barrel but dropped to $44 dollars per barrel during
the economic downturn in 2008.\60\ As the price of oil steadily
increased during 2009, there was an influx of money invested in the
hydraulic fracturing industry. The FEA uses revenue data from 2012 when
the price per barrel fluctuated between $90 and $100. However, in the
fourth quarter of 2014, the price of oil dropped to $49 per barrel. The
price of oil in 2015 has oscillated between approximately $45 and $60
per barrel.\61\ Because of this major change in the industry since the
record closed in 2012, OSHA has supplemented its feasibility analysis
with more current data.
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    \60\ http://www.macrotrends.net/1369/crude-oil-price-history-chart.
    \61\ http://www.macrotrends.net/1369/crude-oil-price-history-chart.
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The Structure of the Hydraulic Fracturing Industry
    Hydraulic fracturing nearly doubled U.S. oil production from 5.6
million barrels a day in 2010 to a rate of 9.3 million barrels a day in
2015. Up until the drop in oil prices during the fourth quarter of
2014, the expected annual increase in production was one million
barrels. The economics of hydraulic fracturing wells is much different
than conventional wells.\62\ The marginal cost of producing a barrel of
oil from a conventional well for large oil producing countries is
around $15 to $30.\63\ Therefore, the owners of conventional wells
continue to produce even as the price per barrel decreased from $100 to
$40, and would remain in business at costs down to $30. The traditional
oil drilling business is driven by marginal costs, not costs spent to
drill the well. This means that supply is inelastic relative to demand.
This has not been true for the hydraulic fracturing industry.
---------------------------------------------------------------------------

    \62\ http://fortune.com/2015/01/09/oil-prices-shale-fracking/.
    \63\ http://knoema.com/vyronoe/cost-of-oil-production-by-country.
---------------------------------------------------------------------------

    Hydraulic fracturing wells have a very short life compared to
conventional wells. For example, a well in the Bakken region straddling
Montana and North Dakota may start out producing 1,000 barrels a day
then decline to 280 barrels at the beginning of year two. By year
three, more than half of the reserves will be depleted. Therefore, to
generate revenue, producers need to constantly drill new wells. In this
sense, hydraulic fracturing wells are more like gold or silver mines
than conventional oil production.\64\ The recent drop in oil prices has
caused a series of bankruptcies and closures across the oil industries.
Although there was a reduction in the number of rigs from about 1,600
to 800,\65\ hydraulic fracturing still accounted for 4.6 million
barrels a day out of a total of 9.4 million barrels or 49 percent of
total oil produced in February 2015. Hydraulic fracturing also
accounted for 54 percent of natural gas output.
---------------------------------------------------------------------------

    \64\ http://fortune.com/2015/01/09/oil-prices-shale-fracking/.
    \65\ http://www.economist.com/node/21648622/print.
---------------------------------------------------------------------------

    The Energy Information Administration (EIA) projects the Brent
crude oil price will average $40 a barrel in 2016 and $50 a barrel in
2017. However, EIA expects crude oil prices

to rise in future years, rising to over $70 per barrel by 2020 and to
$100 per barrel by 2028. EIA's crude oil price forecast remains subject
to significant uncertainties as the oil market moves toward balance and
could continue to experience periods of heightened volatility.\66\
Thus, industry implementation of OSHA's engineering control
requirements, which are not required until five years after the
effective date of the rule, may come during a period of much higher and
rising energy prices. In any case, the price increase required by this
rule is a very small fraction of the fluctuation in energy prices
during the past several years.
---------------------------------------------------------------------------

    \66\ http://www.eia.gov/forecasts/steo/report/prices.cfm.
---------------------------------------------------------------------------

    However, the possibility that oil prices are not going to increase
in the near future has spurred a new wave of innovation in energy
exploration. Now that prices have dropped to around $50 a barrel,
companies are focusing on efficiency and getting the most petroleum for
the least amount of money. With the effective date of this rule on the
horizon, it is possible that some of this innovation will lead to
technologies that not only increase efficiency but reduce worker
exposures to silica at the same time.
    Through the application of new technology OSHA believes that, even
in a lower price environment, hydraulic fracturing entrepreneurs will
be able to implement the controls required by this final rule without
imposing significant costs, causing massive economic dislocations to
the hydraulic fracturing industry, or imperiling the industry's
existence. Big oil-field-services like Haliburton Co. and Schlumberger
Ltd. report that they have witnessed customers concentrating on using
technology such as lasers and other high-tech equipment and data
analytics before they drill to make sure new wells deliver the most
crude for the investment cost. The application of this new technology
as well as fiber-optic tools that help monitor a well during hydraulic
fracturing to make sure that it's working as well as possible and new
techniques to stimulate microbes already present that attach themselves
to bits of oil, essentially breaking it up and making it easier for the
crude to flow through rock \67\ have had positive quantitative results.
Productivity at some ``super-fracking'' wells has increased 400-600
barrels a day per rig from just a few years ago. Drilling efficiency in
some areas has increased as much as 26 percent in a single year \68\
while the time to drill and fracture a well has come down from an
average of 32 days in 2008 to now only about half that time: 14-16 days
from start to finish and in some cases even less. These increased
efficiencies result in significant cost savings.\69\ Also, the lower
demand by hydraulic fracturing companies for equipment rental,
trucking, and labor has caused a decrease in their prices, reducing the
overall cost of hydraulic fracturing.\70\
---------------------------------------------------------------------------

    \67\ http://www.wsj.com/articles/oil-companies-tap-new-technologies-to-lower-production-costs-1442197712/.
    \68\ http://www.forbes.com/sites/judeclemente/2015/05/07/u-s-oil-production-forecasts-continue-to-increase/.
    \69\ http://www.aei.org/publications/top-10-things-i-learned-on-my-summer-trip-to-the-bakken-oil-fields-part-ii/.
    \70\ http://fortune.com/2015/01/09/oil-prices-shale-fracking/.
---------------------------------------------------------------------------

    Although the drop in the price of oil has caused an initial
reduction in hydraulic fracturing operations, the application of
recently developed technology to new wells has increased per well
production. One expert was quoted in Fortune magazine as saying
``[t]here tailing off in U.S. drilling activity, but I expect continued
development drilling in major new areas, particularly the Bakken, even
at $50 (a barrel).'' \71\ In the Bakken region in 2015 the decrease in
oil production resulting from the reduction of rigs was substantially
offset by increases in new well oil production per rig. There are
reasons to believe in the continuance of tight oil growth. An analysis
by IHS shows that most of the potential U.S. tight oil capacity
additions in 2015 have a break-even price in the range of $50 to $69
per barrel. Continued productivity gains, such as improvements in well
completion and downspacing, also support the continuation of U.S.
production growth at lower prices.\72\ Based on these advances, it is
plausible that hydraulic fracturing shale operations may achieve break-
even costs of $5-$20 per barrel.\73\
---------------------------------------------------------------------------

    \71\ http://fortune.com/2015/01/09/oil-prices-shale-fracking/.
    \72\ http://press.ihs.com/press-release/energy-power/tight-oil-test-us-production-growth-remains-resilient-amid-lower-crude-oi.
    \73\ http://economics21.org/commentary/shale-2.0-big-data-revolution-america-oil-fields-05-20-2015.
---------------------------------------------------------------------------

    A sign of the ongoing effectiveness of upgrades in efficiency in
the hydraulic fracturing business is evident in the projections for
U.S. crude production. The EIA's Annual Energy Outlook for 2015 has
projected that the U.S. is on track to hit reach a record for crude
output at 10.6 million barrels a day in 2020.\74\
---------------------------------------------------------------------------

    \74\ http://www.forbes.com/sites/judeclemente/2015/05/07/u-s-oil-production-forecasts-continue-to-increase/.
---------------------------------------------------------------------------

    While the economic conditions faced by the hydraulic fracturing
industry have changed significantly since the publication of the
proposed rule, this discussion shows that there is significant reason
to believe that this rule will not have a significant impact on the
hydraulic fracturing industry. Advancements in technology and the
application of new efficient drilling methods continue to increase the
per-rig production capacity of new-well oil drilling rigs while
lowering the costs of operating these rigs. These technological changes
increase the energy recovered through hydraulic fracturing, and thus
the value of fracturing services, without increasing the costs per well
associated with controlling silica exposures. Further, the demand for
fracturing services will depend, in part, on energy prices. The costs
associated with complying with the silica rule are a minor issue by
comparison. Thus, OSHA's conclusion that this rule is economically
feasible for the hydraulic fracturing industry has not changed.
Railroads
    In the PEA, OSHA did not include any estimates of costs as
percentage of revenues or as a percentage of profits for railroads.
This was due to the fact that the standard sources of economic
statistics that were used for data on revenues and employment for all
other affected industries do not include railroads. The Association of
American Railroads (AAR) expressed concern about the impact of the rule
on small railroads (although not on larger railroads), but did not
provide any estimates or analysis, or suggest that OSHA use any
specific sources to conduct such an analysis. For the FEA, OSHA did
examine costs as percentage of revenues and profits for the railroad
industry as a whole using supplemental information from sources
typically relied on by the industry.
    For the FEA, OSHA estimated that 16,895 workers in the rail
transportation industry (NAICS 4821; ``railroads'') will be covered by
the final standard, including 7,239 workers employed as Ballast Dumpers
and 9,656 workers employed as Machine Operators (for the purposes of
this analysis, OSHA assumed that the machine operators would be
conducting at least some work outside of the cab of the equipment). The
Agency estimated that compliance costs for railroads will total $16.6
million, or $980 per affected worker.
    Based on these estimates, OSHA judged that the final rule is
feasible for railroads because combining

supplemental data from BLS \75\ and the Association of American
Railroads \76\ for the estimated 105 rail transportation establishments
in NAICS 4821 with a reported revenue of $72.9 billion, the cost-to-
revenue impacts are an estimated 0.02 percent and cost-to-profit
impacts are an estimated 0.4 percent. In addition, the per-worker cost
for railroads ($980) is lower than the average per-worker cost ($1,231)
across all affected NAICS industries in general industry and for 2000-
2012, the average profit rate for rail transportation, 6.2 percent, was
significantly higher than the average profit rate for all affected
NAICS industries throughout general industry (3.4 percent).
---------------------------------------------------------------------------

    \75\ Bureau of Labor Statistics, Quarterly Census of Employment
and Wages, Series ID ENUUS0002054821, NAICS 4821, Rail
Transportation. Accessed November 6, 2015.
    \76\ Railroad Statistics. Association of American Railroads. AAR
Policy and Economics Department. July 15, 2014. http://www.aar.org/StatisticsAndPublications/Documents/AAR-Stats.pdf.
---------------------------------------------------------------------------

    The AAR noted that small railroads had not been covered in the
Initial Regulatory Flexibility Analysis (Document ID 2366, p. 4). The
commenter is correct that OSHA did not examine small entities in this
sector but has done so for the FEA using supplemental information on
railroads.
    In 2012, 574 U.S. freight rail establishments, employing 181,264
workers, operated on roughly 169,000 miles of track.\77\ The Surface
Transportation Board in the U.S. Department of Transportation
classifies railroads into three groups based on annual revenues:
---------------------------------------------------------------------------

    \77\ Class I Railroad Statistics. Association of American
Railroads. AAR Policy and Economics Department. July 15, 2014.
---------------------------------------------------------------------------

     Class I for freight railroads defined as railroads with
annual operating revenues above $467.1 million ($2013)
     Class II, includes some regional railroads, defined as
railroads each with operating revenues between $37.4 million and $467.1
million ($2013)
     Class III for all other freight rail operations (including
smaller regional, short-line, switching, and terminal).\78\
---------------------------------------------------------------------------

    \78\ Federal Register, Volume 79, No. 111, June 10,2014, p.
33257, cited in Summary of Class II and Class III Railroad Capital
Needs and Funding Sources--A Report to Congress, Federal Railroad
Administration, October 2014, p. 2 http://www.fra.dot.gov/Elib/Document/14131.
---------------------------------------------------------------------------

    In 2013, in addition to the seven Class I freight railroad systems,
there were 21 regional railroads (line-haul railroads operating at
least 350 miles of road and/or earning revenue between roughly $40
million and the Class I threshold), and over 500 local railroads (line-
haul or short-line railroads smaller than regional railroads).\79\
Among the 567 railroads that fell below the Class I revenue threshold,
11 qualified as Class II and the remainder (556, including 10 regional
railroads) qualified as Class III (FRA, 2015). Class III railroads are
typically local short-line railroads serving a small number of towns
and industries or hauling cars for one or more larger railroads. Many
Class III railroads were once branch lines of larger railroads or
abandoned portions of main lines.
---------------------------------------------------------------------------

    \79\ Freight Railroads Background. (FR, 2015) Stephanie
Lawrence, Office of Policy, Office of Rail Policy and Development,
Federal Railroad Administration April 2015. http://www.fra.dot.gov/eLib/Details/L03011. These regional railroads are almost evenly
divided between Class II (11 railroads) and Class III (10
railroads).
---------------------------------------------------------------------------

    In 2012, employment within 546 local railroad companies totaled
12,293 workers and employment within 21 regional railroads totaled
5,507 workers. Line Haul Railroads are classified in NAICS 482111 and
entities within this industry with 1,500 or fewer workers are
classified as small by SBA size standards. Local/Short Line Railroads
are classified in NAICS 482112 and entities within this industry with
500 or fewer workers are classified as small by the SBA size standard.
For 2012, OSHA estimated that all 567 Class II and Class III railroads
(combined total of 17,800 workers) qualified as small entities
according to the SBA definitions.
    In a recent study prepared for Congress,\80\ the Federal Railroad
Administration reported that in 2013, 546 Local/Short Line Railroads
employed 12,293 workers and earned $2.6 billion in revenue. OSHA
estimates that of the 16,895 affected employees throughout rail
transportation, 1,146 employees of Short-Line railroads are affected by
the final rule.\81\ According to the BLS Quarterly Census of Employment
and Wages, on average 32 establishments were identified within NAICS
482112, Short-Line Railroads (an establishment can operate more than
one railroad). Therefore, if all 546 Class III railroads are controlled
by 32 establishments, OSHA estimates that revenue per establishment is
approximately $81.3 million.
---------------------------------------------------------------------------

    \80\ Summary of Class II and Class III Railroad Capital Needs
and Funding Sources, Federal Railroad Administration, Report to
Congress, October 2014.http://www.fra.dot.gov/Elib/Document/14131.
    \81\ (16,895 affected workers/181,264 total employees in NAICS
4821) * 12,293 total Short-Line employees = 1,146 affected Short-
Line employees.
---------------------------------------------------------------------------

    OSHA estimated that compliance costs for rail transportation will
total $16,562,059. Therefore, if costs per affected worker ($980 per
worker) are apportioned to the establishments operating Short-Line
Railroads, OSHA estimates that costs for these local railroads will
total $1.1 million, or roughly $35,100 per establishment. As noted
above, annual revenues among Short-Line rail operations total
approximately $2.6 billion, or $81.3 million per establishment.
Applying the industry-wide profit rate of 6.23 percent for NAICS 4821,
OSHA estimated that profits per establishment in NAICS 482112 are $5.1
million. Therefore, OSHA estimates that impacts measured as costs as a
percent of revenues will not exceed 0.04 percent, and that impacts
measured as costs as a percent of profits will not exceed 0.69 percent.
Thus, OSHA concludes that the silica standard will not impose a
significant impact on a substantial number of small entities in rail
transportation and therefore will not threaten the competitive
structure or viability of small entities in NAICS 482110.
d. Economic Feasibility Screening Analysis: Small and Very Small
Businesses
    The preceding discussion focused on the economic viability of the
affected industries in their entirety. Even though OSHA found that the
final standard did not threaten the survival of these industries, there
is still the possibility that the competitive structure of these
industries could be significantly altered.
    To address this possibility, OSHA followed its normal rulemaking
procedure for examining the annualized costs per affected small entity
and per very small entity for each affected industry in general
industry and maritime. Again, OSHA used its typical minimum threshold
level of annualized costs equal to one percent of annual revenues--and,
secondarily, annualized costs equal to ten percent of annual profits--
below which the Agency has concluded that the costs are unlikely to
threaten the survival of small entities or very small entities or,
consequently, to alter the competitive structure of the affected
industries.
    Compliance costs for entities with fewer than 20 employees were
estimated, in many cases, using a derived compliance cost per employee.
Assuming costs to be equally distributed among all employees, OSHA
estimated the compliance cost per employee by dividing total costs for
each NAICS by the number of employees. OSHA then multiplied the
compliance cost per employee with the ratio of the average number of
employees per entity with fewer than 20 employees. Similarly,
compliance costs per small entity were estimated from the product of
compliance costs per employee and the

average number of employees in entities within the SBA classification
for the given NAICS. However, some compliance costs, such as some
engineering control costs, were modified to reflect diseconomies of
scale for very small establishments.
    As shown in Table VII-19 and Table VII-20, the annualized cost of
the final rule is estimated to be $2,967 for the average small entity
in general industry and maritime and $1,532 for the average very small
entity in general industry and maritime. These tables also show that
the only industry in which the annualized costs of the final rule for
small entities exceed one percent of annual revenues is NAICS 213112
(Support Activities for Oil and Gas Operations), which is estimated to
be 1.29 percent. There are two industries for very small entities
exceeding one percent of annual revenues--NAICS 213112 (Support
Activities for Oil and Gas Operations), 2.09 percent and NAICS 327110
(Pottery, Ceramics, and Plumbing Fixture Manufacturing), 1.21 percent.
    Small entities in nine industries in general industry and maritime
are estimated to have annualized costs in excess of ten percent of
annual profits; NAICS 327110: Pottery, Ceramics, and Plumbing Fixture
Manufacturing (38.6 percent); NAICS 327120: Clay Building Material and
Refractories Manufacturing (33.6 per cent); NAICS 327991: Cut Stone and
Stone Product Manufacturing (24.7 percent); NAICS 327999: All Other
Miscellaneous Nonmetallic Mineral Product Manufacturing (20.9 percent);
NAICS 327390: Other Concrete Product Manufacturing (18.6 percent);
NAICS 213112: Support Activities for Oil and Gas Operations (18.2
percent); NAICS 327332: Concrete Pipe Manufacturing (14.5 percent);
NAICS 327331: Concrete Block and Brick Manufacturing (13.1 percent);
and NAICS 327320: Ready-Mix Concrete Manufacturing (11.5 percent).
    Very small entities in sixteen industries are estimated to have
annualized costs in excess of ten percent of annual profit: NAICS
327110: Pottery, Ceramics, and Plumbing Fixture Manufacturing (90.6
percent); NAICS 327120 Clay Building Material and Refractories
Manufacturing (58.5 percent); NAICS 327999: All Other Miscellaneous
Nonmetallic Mineral Product Manufacturing (51.1 percent); NAICS 327991:
Cut Stone and Stone Product Manufacturing (30.8 percent); NAICS 213112:
Support Activities for Oil and Gas Operations (29.5 percent); NAICS
327390: Other Concrete Product Manufacturing (29.2 percent); NAICS
327212: Other Pressed and Blown Glass and Glassware Manufacturing (22.7
percent); NAICS 327332: Concrete Pipe Manufacturing (22.1 percent);
NAICS 327211: Flat Glass Manufacturing (20.4 percent); NAICS 327331:
Concrete Block and Brick Manufacturing (19.5 percent); NAICS 327993:
Mineral Wool Manufacturing (17.4 percent); NAICS 327992: Ground or
Treated Mineral and Earth Manufacturing (16.3 percent); NAICS 327320:
Ready-mix Concrete Manufacturing (15.9 percent); NAICS 331513: Steel
Foundries (except investment) (12.3 percent); NAICS 331524: Aluminum
Foundries (except die-casting) (11.3 percent); and NAICS 331511: Iron
Foundries (10.0 percent).
    In general, cost impacts for affected small entities or very small
entities will tend to be somewhat higher, on average, than the cost
impacts for the average business in those affected industries. That is
to be expected. After all, smaller businesses typically suffer from
diseconomies of scale in many aspects of their business, leading to
lower revenue per dollar of cost and higher unit costs. Small
businesses are able to overcome these obstacles by providing
specialized products and services, offering local service and better
service, or otherwise creating a market niche for themselves. The
higher cost impacts for smaller businesses estimated for this rule
generally fall within the range observed in other OSHA regulations for
which there is no record of major industry failures.
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BILLING CODE 4510-26-C
    In allocating the share of costs to very small entities, OSHA did
not have direct information about how many very small entities were
engaged in silica-related activities. Instead, OSHA assumed that the
affected employees would be distributed among entities of different
size according to each entity size class's share of total employment.
In other words, if 15 percent of employees in an industry worked in
very small entities (those with fewer than 20 employees), then OSHA
assumed that 15 percent of affected employees in the industry

would work in very small entities. However, in reality, OSHA
anticipates that in industries with foundries, none of the entities
with fewer than 20 employees have foundries or, if they do, that the
impacts are much smaller than estimated here.
SBREFA Comments on Impacts on General Industry and Maritime
    In this section, OSHA reviews comments addressing economic impacts
in general industry and maritime that were submitted during the SBREFA
process prior to the PEA. OSHA addressed these comments in the PEA that
was made available for public comment, but OSHA did not receive
comments specifically addressing its responses to the SBREFA
recommendations. OSHA is reprinting its responses here for the
convenience of the reader.
    SERs from foundries stated that there had been a long-run decline
in the number of foundries in the United States, with the industry
under continued pressure from foreign competitors and the need to meet
new domestic regulations. The total expense of the draft standard and
inability to meet lower PELs would pressure more U.S. foundries out of
business, continuing an historical trend in this industry, SERs said.
The variability in the foundry products and small open-area production
plants would make meeting lower PELs difficult and costly. Many smaller
foundries would be put out of business, the SERs said, and many jobs
lost in the industry. ``Twenty percent of profits is a great deal to
spend on engineering controls with questionable results . . . . [t]he
economics of the foundry industry today are not pretty,'' one SER said.
And another: ``The cost of meeting the standard will be very difficult
. . . . A PEL of 50 would put us out of business.'' OSHA found in this
FEA that costs as percentage of profits for even very small foundries
would not rise to a level of 20 percent.
    SERs from the brick industry stated that meeting the provisions of
the draft proposed standard, particularly with a lower PEL, would be
very tough for their competitive, low margin industry. Similarly, a SER
from the pre-cast concrete industry said, ``The problem is not putting
the company out of business, but that the price of products will
increase.'' OSHA found that because bricks face limited foreign
competition, a very small change in the price of bricks would not
affect the viability of the industry.
    Other SERs (industrial sand, molding powders, refractory concrete)
noted that the impact of the standard on them, particularly if the PEL
is lowered, would entail substantial costs, but indirect effects could
be significant as well since their major customers (foundries) could be
negatively impacted, too. ``Refractory companies are going out of
business with the foundries,'' one SER said. OSHA has concluded that
foundries will not, in general go out of business.
e. Regulatory Flexibility Screening Analysis
    To determine if the Assistant Secretary of Labor for OSHA can
certify that the final silica standard for general industry and
maritime will not have a significant economic impact on a substantial
number of small entities, the Agency has developed screening tests to
consider minimum threshold effects of the final standard on small
entities. The minimum threshold effects for this purpose are annualized
costs equal to one percent of annual revenues and annualized costs
equal to five percent of annual profits applied to each affected
industry. (OSHA uses five percent as a threshold for significant
impacts on small entities rather than the ten percent used for
potentially serious impacts on industries in order to assure that small
entity impacts will always receive special attention.) OSHA has applied
these screening tests both to small entities and to very small
entities. For purposes of certification, the threshold level cannot be
exceeded for affected small entities or very small entities in any
affected industry. Table VII-19 and Table VII-20 show that, in general
industry and maritime, the annualized costs of the final rule exceed
one percent of annual revenues for small entities and very small
entities in one industry. These tables also show that the annualized
costs of the final rule exceed five percent of annual profits for small
entities in 15 industries and for very small entities in 25 industries.
OSHA is therefore unable to certify that the final rule will not have a
significant economic impact on a substantial number of small entities
in general industry and maritime and must prepare a Final Regulatory
Flexibility Analysis (FRFA). The FRFA is presented in Section VII.I of
this preamble.
3. Impacts in Construction
a. Economic Feasibility Screening Analysis: All Establishments
    To determine whether the final rule's estimated costs of compliance
would threaten the economic viability of affected construction
industries, OSHA used the same data sources and methodological approach
that were used earlier in this section for general industry and
maritime. OSHA first compared, for each affected construction industry,
annualized compliance costs to annual revenues and profits per
(average) affected establishment. The results for all affected
establishments in all affected construction industries are presented in
Table VII-21, using annualized costs per establishment for the final
PEL of 50 [mu]g/m\3\.
    The annualized cost of the rule for the average establishment in
construction, encompassing all construction industries, is estimated at
$1,097 in 2012 dollars. The estimates of the annualized costs per
affected establishment range from $4,811 for NAICS 237300 (Highway,
Street, and Bridge Construction) and $4,463 for NAICS 237100 (Utility
System Construction) to $364 for NAICS 236100 (Residential Building
Construction) and $360 for NAICS 221100 (Electric Utilities).
    Table VII-21 shows that the annualized costs of the rule do not
exceed one percent of annual revenues or 10 percent of annual profits
for any affected construction industry. NAICS 238100 (Foundation,
Structure, and Building Exterior Contractors) has both the highest cost
impact as a percentage of revenues, of 0.12 percent, and the highest
cost impact as a percentage of profits, of 3.66 percent. For all
affected establishments in construction, the estimated annualized cost
of the final rule is, on average, equal to 0.05 percent of annual
revenue and 1.52 percent of annual profit. These are well below the
minimum threshold levels of 1 percent and 10 percent, respectively.
    Therefore, even though the annualized costs of the final rule
incurred by the construction industry as a whole are roughly twice the
combined annualized costs incurred by general industry and maritime,
OSHA concludes, based on its screening analysis, that the annualized
costs as a percentage of annual revenues and as a percentage of annual
profits are below the threshold level that could threaten the economic
viability of any of the construction industries. OSHA therefore finds
that the final rule is economically feasible for each of the industries
engaged in construction activities. OSHA further notes that while there
would be additional costs (not attributable to the final rule) for some
employers in construction industries to come into compliance with the
preceding silica standard, these costs would not affect the Agency's

determination of the economic feasibility of the final rule.
    Below, OSHA provides additional information to further support the
Agency's conclusion that the final rule would not threaten the economic
viability of any construction industry.
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b. Normal Year-to-Year Variations in Profit Rates
    As previously noted, the United States has a dynamic and constantly
changing economy in which large year-to-year changes in industry profit
rates are commonplace. A recession, a downturn in a particular
industry, foreign competition, or the increased competitiveness of
producers of close domestic substitutes are all easily capable of
causing a decline in profit rates in an industry of well in excess of
10 percent in one year or for several years in succession.
    To demonstrate the normal year-to-year variation in profit rates
for all the establishments in construction affected by the final rule,
OSHA presented data in the FEA on year-to-year profit rates and year-
to-year percentage changes in profit rates, by industry, for the years
2000-2012. For the combined affected industries in construction over
the 13-year period, the average change in profit rates was 63.09
percent a year. If the three worst years are excluded, there is still
substantial variation in profits, far larger than the change in profits
that would be necessary if the costs of this rule cannot be passed on.
    These data indicate that even if the annualized costs of the final
rule for the most significantly affected construction industries were
completely absorbed in reduced annual profits, the magnitude of reduced
annual profit rates is well within normal year-to-year variations in
profit rates in those industries and does not threaten their economic
viability. Of course, a permanent loss of profits would present a
greater problem than a temporary loss, but it is unlikely that all
costs of the final rule would be absorbed in lost profits. Given that,
as discussed in Chapter VI of the FEA, the overall price elasticity of
demand for the outputs of the construction industry is fairly low and
that almost all of the costs estimated in Chapter V of the FEA are
variable costs, the data and economic theory suggest that most firms
will see small declines in output rather than that any but the most
extremely marginal firms would face any real risk of closure. Many
parts of the construction industry have already absorbed much more
drastic changes in profit without evidence of industry collapse or
major change.
Market Structure and Market Impacts in the Construction Industry
    At a conceptual level, the market-determined output of the
construction industry depends on the intersection of demand and supply
curves. Incremental compliance costs of the rule (which are almost
entirely variable costs) shift the construction supply curve upward.
The net effect is an increase in the price for construction activities
and a reduction in the level of activity (with the magnitude of this
effect depending on the price elasticity of demand). Lower levels of
activity mean less construction work, a reduction in the number of
construction establishments, and a concomitant reduction in
construction employment. The greater the price elasticity of demand and
the greater the increase in marginal costs, the larger will be the
reduction in equilibrium output. In terms of prices, the greater the
price elasticity of demand, the smaller the increase in prices will be
for a given increment to marginal costs, and the larger the reduction
in output.
    Increasing the cost of construction project activities that
generate silica exposures has two effects on the demand for these
activities. First, increasing the cost of silica-related jobs relative
to the costs of other construction inputs might result in substitution
away from this type of work. Architects, building designers, and
contractors might be more likely to choose building methods and
materials that eliminate or reduce the need to perform silica-related
jobs. For example, pre-cast concrete structures that require a
relatively high level of concrete finishing work would become more
expensive relative to other building technologies. Contractors and
others could reduce the cost impact of the standard by switching to
other building methods unaffected by the silica rule when the
alternative would result in lower cost than would compliance with the
rule. The magnitude of these impacts will depend on the feasibility,
characteristics, and relative expense of alternative technologies.
    Second, some of the increase in the cost of silica-generating
activities will increase the marginal cost of construction output and
cause the construction supply curve to shift upward, resulting in a
higher price for each quantity produced. The magnitude of the impact of
the cost increases due to the silica rule on the supply relationship
will depend on the size of the cost increases and the importance of
silica-generating activities in the overall cost of construction
projects. If the silica-generating activities are a small portion of
the overall cost of construction then the supply curve shift will be
smaller when compared to a shift in the supply curve from silica-
generating activity that is a large portion of the overall cost of
construction. If, for example, there is a one percent increase in the
costs of a silica generating activity and the silica generating
activity constitutes only one percent of the costs of a building, then
the total increase in the cost of the building will be an almost
unobservable 0.01 percent. Magnitude of shifts in derived demand for a
service used in making another product are determined by the price
change for the final product, not the price change for the service
itself.
    In practice, if one considers the costs of the final rule relative
to the size of construction activity in the United States, it is clear
that the price and profit impacts of the final rule on construction
industries must be quite limited. The annualized cost of the final rule
would be equal to approximately 0.1 percent of the value of annual
construction activity in the U.S. Moreover, construction activity in
the U.S. is not subject to any disadvantage from foreign competition--
any foreign firms performing construction activities in the United
States would be subject to OSHA regulations.
c. Impacts by Type of Construction Demand
    The demand for construction services originates in three
independent sub-sectors: residential building construction,
nonresidential building construction, and nonbuilding construction.
    Residential Building Construction: Residential building demand is
derived from the household demand for housing services. These services
are provided by the stock of single and multi-unit residential housing
units. Residential housing construction represents changes to the
housing stock and includes construction of new units and modifications,
renovations, and repairs to existing units. A number of studies have
examined the price sensitivity of the demand for housing services.
Depending on the data source and estimation methodologies, these
studies have estimated the demand for housing services at price
elasticity values ranging from -0.40 to -1.0, with the smaller (in
absolute value) less elastic values estimated for short-run periods
(Glennon, 1989, Document ID 0707; Mayo, 1981, Document ID 0794). In the
long run, it is reasonable to expect the demand for the stock of
housing to reflect similar levels of price sensitivity.
    Many of the silica-generating construction activities affected by
the rule are not widely used in single-family construction or
renovation. This assessment is consistent with the cost estimates that
show relatively low impacts for residential building contractors. (See
Table VI-9 of the FEA--the costs as a percent of revenues

for Residential Building Construction are estimated to be 0.03 percent
and the costs as a percent of profits are estimated to be 1.29
percent). Multi-family residential construction might have more
substantial impacts, but, based on Census data, this type of
construction represents a relatively small share of net investment in
residential buildings.
    Nonresidential Building Construction: Nonresidential building
construction consists of industrial, commercial, and other
nonresidential structures. As such, construction demand is derived from
the demand for the output of the industries that use the buildings. For
example, the demand for commercial office space is derived from the
demand for the output produced by the users of the office space. The
price elasticity of demand for this construction category will depend,
among other things, on the price elasticity of demand for the final
products produced, the importance of the costs of construction in the
total cost of the final product, and the elasticity of substitution of
other inputs that could substitute for nonresidential building
construction. ERG (2007c) found no studies that attempted to quantify
these relationships (Document ID 1710). But given the costs of the
final rule relative to the size of construction spending in the United
States, the resultant price or revenue effects are likely to be quite
small as well.
    Nonbuilding Construction: Nonbuilding construction includes roads,
bridges, and other infrastructure projects. Utility construction (power
lines, sewers, water mains, etc.) and a variety of other construction
types are also included. A large share of this construction (63.8
percent) is publicly financed (ERG, 2007a, Document ID 1709). For this
reason, a large percentage of the decisions regarding the appropriate
level of such investments is not made in a private market setting. The
relationship between the costs and price of such investments and the
level of demand might depend more on political considerations than the
factors that determine the demand for privately produced goods and
services.
    While a number of studies have examined the factors that determine
the demand for publicly financed construction projects, these studies
have focused on the ability to finance such projects (e.g., tax
receipts) and socio-demographic factors (e.g., population growth) to
the exclusion of cost or price factors. In the absence of budgetary
constraints, the price elasticity of demand for public investment is
therefore probably quite low. On the other hand, budget-imposed limits
might constrain public construction spending. If the dollar value of
public investments were fixed, a price elasticity of demand of 1 would
be implied and any percentage increase in construction costs would be
offset with an equal percentage reduction in investment (measured in
physical units), keeping public construction expenditures constant.
    Public utility construction comprises the remainder of nonbuilding
construction. This type of construction is subject to the same derived-
demand considerations discussed for nonresidential building
construction, and for the same reasons, OSHA expects the price and
profit impacts to be quite small.
SBREFA Comments on Impacts on the Construction Industry
    In this section OSHA reviews comments addressing economic impacts
in construction that were submitted during the SBREFA process prior to
the PEA. OSHA addressed these comments in the PEA that was made
available for public comment, but did not receive comments specifically
addressing its responses to the SBREFA recommendations. OSHA is
reprinting its responses here for the convenience of the reader.
    One commenter believed that OSHA had ignored the range of
profitability among businesses, and thus did not adequately recognize
that the average percentage reduction in profits could mean bankruptcy
for those firms struggling to stay afloat. The Agency's approach to
economic feasibility is designed to address the overall health of
industries in compliance with legal precedent, which permits OSHA to
find a regulation economically feasible even though it may close some
marginal firm. In most years, ten percent or more of construction firms
exit the industry (See U.S. Census Bureau Business Dynamics Statistics,
available at http://www.census.gov/ces/dataproducts/bds/data_firm.html). The slight acceleration of the closure of such firms
is not the kind of economic impact that would make a regulation
economically infeasible.
    The commenter also asserted that OSHA ignored the cost of credit
and that this also varies across businesses. OSHA believes that the
cost of credit is not an important issue in this case because OSHA's
analysis demonstrates that, in most cases, upfront costs can usually be
met from cash flow. Earlier in this chapter, OSHA noted that its choice
of a threshold level of ten percent of annual profits for economic
feasibility determinations is low enough that even if, in a
hypothetical worst case, all compliance costs were upfront costs, then
upfront costs would still equal 88.5 percent of profits and thus would
be affordable from profits alone without needing to resort to credit
markets. As shown in Table VI-12 of the FEA, all industries' costs are
a very small percentage of profits, assuring that even upfront costs
can be met from profits without resorting to credit markets. Further, a
firm that is having trouble meeting upfront costs can rent the
appropriate tools without incurring any upfront capital investment
costs.
    A SER asserted that the impact of the rule would be
``catastrophic'' for the concrete cutting industry. One SER maintained
that the rule would be both economically and technologically infeasible
for the specialty trade concrete cutting industry (Document ID 0937, p.
69). The Small Business Advocacy Review (SBAR) Panel recommended that
OSHA thoroughly review the economic impacts, and develop a more
detailed economic feasibility analysis for certain industries (Document
ID 0937, p. 69). OSHA believes that the analyses in this chapter and in
Chapter IX of the FEA address the SER's comments and the SBAR Panel
recommendations.
    Concrete cutting is undertaken for such purposes as grooving for
projects such as highways, bridges, and sidewalks along with repairing
these structures when they become operationally unsound. These
contracts are bid on by firms who will all fall under the final silica
rule, so there is no economic disadvantage between firms caused by the
silica rule. Because the silica rule only applies in areas subject to
OSHA jurisdiction, there is no foreign competition that would not also
be subject to the silica standard. The cutting industry also works on
runways and parking lots along with homebuilders for smaller projects.
The demand for these products are relatively inelastic and not subject
to foreign competition, enabling these companies to pass most of the
costs of this final rule onto their consumers. Based on these analyses,
OSHA disagrees that the rule would be ``catastrophic'' or economically
infeasible for the concrete cutting industry.
d. Economic Feasibility Screening Analysis: Small and Very Small
Businesses
    The preceding discussion focused on the economic viability of the
affected construction industries in their entirety. However, even
though OSHA found that the silica standard did not threaten the

survival of these construction industries, there is still the
possibility that the industries' competitive structures could be
significantly altered.
    To address this possibility, OSHA examined the annualized costs per
affected small and very small entity for each affected construction
industry. Table VII-22 and Table VII-23 show that in no construction
industries do the annualized costs of the final rule exceed one percent
of annual revenues or 10 percent of annual profits either for small
entities or for very small entities. Therefore, OSHA concludes, based
on its screening analysis, that the annualized costs as a percentage of
annual revenues and as a percentage of annual profits are below the
threshold level that could threaten the competitive structure of any of
the construction industries.
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e. Differential Impacts on Small Entities and Very Small Entities
    Below, OSHA provides some additional information about differential
compliance costs for small and very small entities that might influence
the magnitude of differential impacts for these smaller businesses.
    The distribution of impacts by size of business is affected by the
characteristics of the compliance measures. For silica controls in
construction, the dust control measures consist primarily of equipment
modifications and additions made to individual tools, rather than
large, discrete investments, such as might be applied in a
manufacturing setting. As a result, compliance advantages for large
firms through economies of scale are limited. It is possible that some
large construction firms might derive purchasing power by buying dust
control measures in bulk. However, given the simplicity of many control
measures, such as the use of wet methods on machines already
manufactured to accommodate controls, such differential purchasing
power appears to be of limited consequence.
    The greater capital resources of large firms will give them some
advantage in making the relatively large investments needed for some
control measures. For example, cab enclosures on heavy construction
equipment or foam-based dust control systems on rock crushers might be
particularly expensive for some small entities with an unusual number
of heavy equipment pieces. Nevertheless, where differential investment
capabilities exist, small construction firms may also have the
capability to achieve compliance with lower-cost measures, such as by
modifying work practices. In the case of rock crushing, for example,
simple water spray systems can be arranged without large-scale
investments in the best commercially available systems.
    In the program area, large firms might have a slight advantage in
the delivery of training or in arranging for health screenings. This
phenomenon has been accounted for in the analysis that OSHA provides.
f. Regulatory Flexibility Screening Analysis
    To determine if the Assistant Secretary of Labor for OSHA can
certify that the final silica standard for construction will not have a
significant economic impact on a substantial number of small entities,
OSHA applies the same screening analysis to construction as it does for
general industry, as discussed earlier in that section for the same
reasons: annualized costs equal to one percent of annual revenues and
annualized costs equal to five percent of annual profits applied to
each affected industry. OSHA has applied these screening tests both to
small entities and to very small entities. For purposes of
certification, the threshold levels cannot be exceeded for affected
small or very small entities in any affected industry.
    Table VII-22 and Table VII-23 show that in no construction
industries do the annualized costs of the final rule exceed one percent
of annual revenues or five percent of annual profits either for small
entities or for very small entities. However, as previously noted in
this section, OSHA is unable to certify that the final rule will not
have a significant economic impact on a substantial number of small
entities in general industry and maritime and must prepare a Final
Regulatory Flexibility Analysis (FRFA). The FRFA is presented in
Section VII.I of this preamble.
4. Employment Impacts on the U.S. Economy
    The discussion below on employment impacts of the silica rule on
the U.S. economy is divided into three parts: (1) a brief summary of
the employment impacts of the proposed silica rule (based on an
analysis performed for OSHA by its subcontractor, Inforum, in 2011,
Document ID 1701) that the Agency included in the PEA in support of the
silica proposal; (2) a review of estimates provided by commenters on
the employment effects of the silica proposal; and (3) a summary of a
recent analysis of the employment effects of the final silica rule that
Inforum performed for OSHA, followed by a critique of the commenters'
analysis of employment effects relative to Inforum's analysis.
a. Inforum Analysis of Employment Effects Prepared for Silica Proposal
    In October 2011, OSHA directed Inforum \82\ to run its
macroeconomic model to estimate the employment impacts of the costs
\83\ of the proposed silica rule. Inforum ran the model for the ten-
year period 2014-2023 and reported its annual and cumulative employment
and other macroeconomic results. While employment effects varied from
year to year and from industry to industry, a key Inforum result was
that the proposed silica rule cumulatively would generate an additional
8,625 job-years over the period 2014--2023, or an additional 862.5 job-
years annually, on average, over the period.\84\ A fuller discussion of
Inforum's macroeconomic model and the results of its analysis can be
found in Chapter VI of the PEA in support of OSHA's silica proposal and
in the Inforum report itself (Inforum, 2011, Document ID 1701).
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    \82\ Inforum, which stands for the INterindustry FORecasting at
the University of Maryland, is a not-for-profit Maryland
corporation. Inforum has over 45 years of experience designing and