As City bankers plan how to spend their generous Christmas bonuses, a report from nef (the new economics foundation) published today, Monday 14 December 2009, unveils a new method for calculating the true value to society of different jobs.

A Bit Rich? Calculating the Real Value to Society of Different Professions questions whether pay reflects the true value of different jobs and shatters some of the myths used to justify high pay.

Controversy over bankers’ bonuses raises fundamental questions, not just about the pay of senior executives, but also about the relative value of everyone’s work in society.

For each activity, the analysis measures the conventional economic returns, including job creation, but adds in, for example, attributable environmental degradation, and changes in well-being – either positive or negative – to individuals and communities in wider society.
The research reveals that overall:

· Elite City bankers (earning £1 million-plus bonuses) destroy £7 of value for every £1 they create.
· Hospital cleaners create over £10 in value for every £1 they receive in pay.
· Advertising executives destroy £11 of value for every £1 created.
· Child care workers generate between £7 and £9.50 for every £1 they are paid.
· Tax accountants destroy £47 for every £1 they create.
· Waste recycling workers generate £12 for every £1 spent on their wages.

Eilís Lawlor at nef said: “This report is not about targeting individuals in highly paid jobs. Neither is it simply suggesting that people in low-paid jobs should be paid 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.”

In particular, the report challenges the claim that high pay does not matter so long as poverty is eradicated.

High pay comes on the back of extraordinary profits, made possible because companies do not have to pay the full costs of their activities. Some of the costs of production may be hard to see, such as greenhouse gas emissions or the impacts of sweated labour, but someone is bearing them now – or in the future.

A Bit Rich suggests that until the prices of goods and services reflects the true costs of their production, incentives will be misaligned. This means damaging activities will be relatively cheap and profitable, whilst positive activities will be discouraged.

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1. Calculations contained in the report were performed using some of the principles of Social Return on Investment (SROI) an analytic tool for measuring and accounting for a much broader concept of value. It incorporates social, environmental and economic costs and benefits into decision making, providing a fuller picture of how value is created or destroyed. For more information visit this page.

2. Examples of factors considered in the calculations

For City Bankers
We calculated the value created or destroyed by elite investment bankers earning more than £500,000 – and specifically those commanding £1 million-plus bonuses. Factors in calculating the value they created included the average annual contribution of the City of London to UK economic activity; tax contributions to the Exchequer and jobs provided in the wholesale finance sector. Against that were weighed the cost of the current financial crisis – triggered by the risky activities of bankers – in terms of loss to UK gross domestic product and economic capacity; and the cost of the crisis in terms of the negative impact on public finance. The model balanced the value destroyed in the crash with the value created during a 20-year indicative career.

For hospital cleaners
There are some 27,000 hospital cleaners in the UK, earning on average just over £6 an hour. Our baseline measure was the prevention of the spread of hospital-acquired infections. Factors included the number of infections cleaners are estimated to prevent each year, the savings to the NHS, estimates of the number and value of lives saved through prevented infections and of the wider contribution cleaners make to overall patient care and the effective running of hospitals.

From a press release

Reader comments

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