Monday, December 14, 2009

You're Worth Even More Than You Think You Are

December 14, 2009, 6:15 a.m.

Tying Pay to Social Value
(brought to you by*)
"There should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that."
-- Eilis Lawlor, New Economics Foundation
Not that you've ever doubted it, I suspect, but it really does turn out that the folks who clean our hospitals are making a greater economic contribution to our society than bankers. At least that's what the New Economics Foundation has asserted and documented in a report this morning.

For the past 75 years the non-profit, independent Consumers Union, with its subscriber-supported, advertising-free Consumer Reports publication and online service, has been putting the lie to the old adage "you get what you pay for." You don't. If you're interested in the quality of products, their life expectancy, repair bills, and number of consumer complaints, you're more likely to find the answer by looking at the Consumers Union laboratory results than by looking at the price tags on the products.

This morning the New Economics Foundation (NEF) documents what many of us have suspected all along. Susan Steed, Helen Kersley, Eilis Lawlor, "A Bit Rich: Calculating the real value to society of different professions," New Economics Foundation, December 14, 2009.

It turns out that it's also a lie that we get what we, as a society, are paying for labor. Some of those who are paid the least are actually creating more social and economic value than some of the administrators and professionals -- including the Wall Street bankers -- who are paid the most. Not only is it not true that "you get what you pay for," you may very well "give more than what you're paid for" as well.

"If You Can't Trust Your Banker . . ."

[Credit: "Shady Deal at Sunny Acres," Maverick, 2nd Season, 1958. The popular early television series, Maverick, "starring James Garner and Jack Kelly, remains the most famous and widely discussed episode of the Western comedy television series Maverick. Written by Roy Huggins and Douglas Heyes and directed by Leslie H. Martinson, this 1958 second season episode depicts gambler Bret Maverick (James Garner) being swindled by a crooked banker (John Dehner) after depositing the proceeds from a late-night poker game, then recruiting his brother Bart Maverick (Jack Kelly) to mount an elaborate sting operation to recover the money." It's also the source of two oft-quoted lines: "If you can't trust your banker, whom can you trust?" and "I'm working on it." See, "Shady Deal at Sunny Acres,"]

As the NEF reports, "Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate." (This calculation looks back over 20 years and even credits the bankers with the taxes they paid over those years.)

Because the NEF is a British think tank all its numbers are in British pounds rather than dollars. I'm not going to convert all of them in this blog entry. If you want to do a rough conversion in your head as you read, assume a multiplier of 1.5 -- for example, 10 British pounds (£) would be the equivalent of 15 U.S. dollars ($). (The actual exchange rate has been bouncing around 1.4 to 1.7 for the past year.)

Here's how the NEF introduces its report:

This report 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 analysis to quantify the social, environmental and economic value that these roles produce – or in some cases undermine. . . .

[T]o what extent does what we get paid confer ‘worth’? Beyond a narrow notion of productivity, what impact does our work have on the rest of society, and do the financial rewards we receive correspond to this? Do those that get more contribute more to society?

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 examined the contributions they make to society, and found that, in this case, it was the lower paid jobs which involved more valuable work.

The report goes on to challenge ten of the most enduring myths surrounding pay and work. People who earn more don't necessarily work harder than those who earn less. The private sector is not necessarily more efficient than the public sector. And high salaries don't necessarily reflect talent.

The report offers a series of policy recommendations that would reduce the inequality between different incomes and reconnect salaries with the value of work.
The full report is available as a printed document and also as a pdf file from the link, above -- though of course the NEF server is so overloaded this morning that you may need to wait to get it.

Here's some of what the BBC had to say about it this morning. Martin Shankleman, "Cleaners 'worth more to society' than bankers - study," BBC News, December 14, 2009.
The research, carried out by think tank the New Economics Foundation, says hospital cleaners create £10 of value for every £1 they are paid.

It claims bankers are a drain on the country because of the damage they caused to the global economy.

They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to "create stress".

The study says they are responsible for campaigns which create dissatisfaction and misery, and encourage over-consumption.

And tax accountants damage the country by devising schemes to cut the amount of money available to the government, the research suggests.

By contrast, child minders and waste recyclers are also doing jobs that create net wealth to the country.

The Foundation has used a new form of job evaluation to calculate the total contribution various jobs make to society, including for the first time the impact on communities and environment.

Eilis Lawlor, spokeswoman for the New Economics Foundation, said: "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment".

She said the aim of the research was not to target individuals in highly paid jobs, or suggest people in low paid jobs should earn more.

"The point we are making is more fundamental - that there should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that," she said.

A total of six different jobs were analysed to assess their overall value. These are the study's main findings:

* The elite banker

"Rather than being wealth creators bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse

Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate".

* Childcare workers

"Both for families and society as a whole, looking after children could not be more important. As well as providing a valuable service for families, they release earnings potential by allowing parents to continue working. For every pound they are paid they generate up to £9.50 worth of benefits to society."

* Hospital cleaners

"Play a vital role in the workings of healthcare facilities. They not only clean hospitals and maintain hygiene standards but also contribute to wider health outcomes. For every pound paid, over £10 in social value is created."

* Advertising executives

The industry "encourages high spending and indebtedness. It can create insatiable aspirations, fuelling feelings of dissatisfaction, inadequacy and stress. For a salary of between £50,000 and £12m top advertising executives destroy £11 of value for every pound in value they generate".

* Tax accountants

"Every pound that a tax accountant saves a client is a pound which otherwise would have gone to HM Revenue. For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound 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. There is also a value in reusing goods. For every pound of value spent on wages, £12 of value is generated for society."

The research also makes a variety of policy recommendations to align pay more closely with the value of work.

These include establishing a high pay commission, building social and environmental value into prices, and introducing more progressive taxation.
I'm sure that before the sun sets this evening the bankers' economists, publicists and lobbyists will be doing their best to counter this awful truth. Meanwhile, there may be something here of use to Governor Culver and the Board of Regents.

Could it be that the greatest value to the State of Iowa might be to keep the cleaning crews on the payroll (and in fairness give them a raise) and get maximum savings from layoffs by getting rid of administrators?

For the recent blog entries you may be looking for, go to "There Is No War in Afghanistan," December 4, 2009, and look through the links at the bottom of that blog entry.
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson
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1 comment:

Nick said...

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The only limitation is that advertising posing as comments will be removed. That is why one or more of the comments posted on this blog entry, containing links to businesses, have been deleted. -- Nick