We are in the wake of the worst financial crisis for a century. Yet this Christmas, many highly paid employees of City banks that are responsible for creating this crisis are being paid extravagant bonuses. This comes at a time when wage inequality remains stubbornly high, due in large part to the increased concentration of very high and very low earners in the economy. The controversies over City bankers’ bonuses raise fundamental questions not only about the remuneration of senior executives and public servants but also about the relative value of the work of everyone in our society. How should we assess the wider contribution our work makes?
In this report nef (the new economics foundation) takes a new approach to looking at the value of work. We go beyond how much different professions are paid to look at what they contribute to society. We use some of the principles and valuation techniques of Social Return on Investment analysis1 to quantify the social, environmental and economic value that these roles produce – or in some cases undermine.
Our report tells the story of six different jobs. We have chosen jobs from across the private and public sectors and deliberately chosen ones that illustrate the problem. Three are low paid – a hospital cleaner, a recycling plant worker and a childcare worker. The others are highly paid – a City banker, an advertising executive and a tax accountant. We recognise that our incentives are created by the institutions and systems around us. It is not our intention therefore, to target the individuals that do these jobs but rather to examine the professions themselves.
Early theories of value neglected the extent to which the production and trade of goods and services may have a wider impact on society that is not reflected in the cost of producing them. These ‘externalities’ are often remote or hard to see but that does not mean that they are not real or that they do not affect real people – either now or in the future.
Because social and environmental costs are not properly accounted for, the market tends to oversupply products that may have a significantly negative environmental or social impact – such as cheap consumer goods and complex financial products. In the same way we underpay work that has a high social value, creating high vacancy rates in our most important public services such as nursing and social work. By making social value creation an important societal goal we could set the right incentives to maximise net social benefits, ensure a greater return to labour rather than capital, and a more equal distribution of economic resources between workers.
A closer look at six professions
We have tested our theory by taking a close look at a sample of highly paid and low paid jobs. We found that some of the most highly paid benefit us least, and some of the lowest-paid benefit us most. Although this will not always hold, it does point to a massive flaw in the system and highlights the need for reform.
High-earning investment bankers in the City of London are among the best remunerated people in the economy. But the earnings they command and the profits they make come at a huge cost because of the damaging social effects of the City of London’s financial activities. We found that rather than being ‘wealth creators’, these City bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse. While collecting salaries of between £500,000 and £10 million, leading City bankers to destroy £7 of social value for every pound in value they generate.
Both for families and for society as a whole, looking after children could not be more important. As well as providing a valuable service for families, childcare workers release earnings potential by allowing parents to continue working. They also unlock social benefits in the shape of the learning opportunities that children gain outside the home. For every £1 they are paid, childcare workers generate between £7 and £9.50 worth of benefits to society.
Although the role of an advertising executive has high status, the impact of the industry has always been a point of controversy. It encourages high consumer spending and indebtedness. It can create insatiable aspirations, fuelling feelings of dissatisfaction, inadequacy and stress. In our economic model we estimate the share of social and environmental damage caused by overconsumption that is attributable to advertising. For a salary of between £50,000 and £12 million, top advertising executives destroy £11 of value for every pound in value they generate.
Hospital cleaners play a vital role in the workings of our healthcare facilities. Not only do they clean hospitals and help maintain standards of hygiene to protect against infection but they also contribute towards wider health outcomes. The importance of these cleaners is often underestimated and undervalued in the way they are paid and treated. We estimated, however, that for every £1 they are paid, over £10 in social value is generated.
Determining the right amount of tax payable is a specialist skill and often requires professional support. However, some highly paid tax accountants’ sole purpose is to help rich individuals and companies to pay less tax. We found that the positive benefits to society of these activities are negligible. However, every pound that is ‘avoided’ in tax is a pound that would otherwise have gone to HM Revenue. In our model we looked at how this lost revenue could have been better spent. For a salary of between £75,000 and £200,000 tax accountants destroy £47 of value for every pound in value they generate.
Waste recycling workers do a range of different jobs that relate to processing and preventing waste and promoting recycling. Carbon emissions are significantly reduced when goods are recycled instead of sending them to incineration or landfill.
There is also a value in reusing goods, and we have included this in our model. Our model projects that for every £1 of value spent on wages, £12 of value will be generated.
– from neweconomics.org