Frank proceeds to make a strange argument:
.. the invisible hand might not automatically lead to the best possible levels of safety in the workplace. ... riskier jobs tend to pay more, for two reasons. Because of the money employers save by not installing additional safety equipment, they can pay more; and because workers like safety, they will choose safer jobs unless riskier jobs do, in fact, pay more.
Most parents... want to send their children to the best possible schools. Some workers might thus decide to accept a riskier job at a higher wage because that would enable them to meet the monthly payments on a house in a better school district. But other workers are in the same boat, and school quality is an inherently relative concept. So if other workers also traded safety for higher wages, the ultimate outcome would be merely to bid up the prices of houses in better school districts. Everyone would end up with less safety, yet no one would achieve the goal that made that trade seem acceptable in the first place.
1. School quality is said to be relative, because (I speculate) schools prepare students to compete for jobs in the marketplace and so affect only the relative positions of the workers. But of course, that's not true. If all workers became better trained or smarter by the same "amount," then the same people might end up winners and losers, but society as a whole, i.e., the consumers, would benefit from their higher efficiency, ingenuity, creativity, etc. I thought the whole point of Frank's book was to highlight the distinction and occasional divergence between individual and social benefits!
In other words, each child benefits from better education; the children as a group in their capacity as producers and wage earners, indeed, might not benefit from the "arms race"; but the same children in their capacity as consumers do benefit. Frank has simply not looked far enough.
Moreover, what about higher education that trains scientists and scholars? They cooperate more than they compete. Surely, we'd all benefit from better economists!
2. It should go without saying that in the long run, that is, closer to equilibrium, employers would be "indifferent" between installing safety equipment and paying more to workers. There is a standard yin-yang push and pull here: the more entrepreneurs "save" by not investing in safety, the cheaper it is for others to do the opposite: install safety equipment and reap the benefits of cheaper workers; and vice versa.
As a result, both kinds of firms would exist, thereby providing people with employment choices, precisely the wonderful thing at which the market excels. Novel lines of production would sometimes call for more worker safety; other times, for less; consequently, efficiency is promoted still further by these options.
3. From the point of view of the workers, some would specialize in higher-risk jobs, for example, construction of tall buildings, such as by staying physically very fit and agile; and others would instead agree to be paid less but not worry about safety and focus more on the job instead (as opposed to on avoiding falling). Again, the market fosters choice, only this time for business firms through specialization of workers. The consumers, most of whom are the workers themselves, are the beneficiaries.
Update. Since I'm writing this as I am reading the book, Frank makes an extended argument of exactly this sort on pp. 35-9. His aim is to dehomogenize the arguments for market failure, i.e., refute those he thinks are unpersuasive and present his own.
4. The bidding up on the houses argument is bizarre. A lot of people also want to eat better food, drive more comfortable cars, and own faster computers. If the wages of such people increase, then the prices of these goods may increase, temporarily. So what?
Under sound money, for example, if risk-preferring workers are paid more, then the manufacturers of safety equipment and their factors including workers will be paid less. Demand for consumer goods will shift around due to the reshuffling of net worth of workers with different preferences, but overall, no predictable effect will occur, including anything so definite as "bidding up the prices of houses in better school districts."
5. Finally, there's the idea of "best possible" "levels of safety in the workplace." Best possible according to who? The market is not a simple game whose parameters an economist controls. It's an enormously complex massively parallel process of innovation and imitation. What is "best" is determined by the outcome of market forces; no economist can substitute his own notions of the good for those of the market actors. For goodness' sake, have some humility, Frank. You are not a socialist central planner; you barely survived a tennis game, and you think you are competent to pronounce what is "best possible" in a global market, the forces affecting which are without number? Get real.