– City bankers destroy £ 7 of social value for every pound they generate.
– Top advertising executives destroy £11 of value for every pound they generate.
– Tax accountants destroy £47 of value for every pound they generate
– For every £1 they are paid, childcare workers generate between £7 and £9.50 worth of benefits to society
The figures above are from a New Economics Foundation report from 2009, but still essential reading.
* Report: A Bit Rich. Calculating the real value to society of different professions. New Economics Foundation, 2009
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.
From the Executive Summary, we are excerpting the mythbusting section as well as policy recommendations:
1. The myths of pay and value
“This report sets out to shatter some myths about pay and value. Chief among them – and the point of the research – is to show that there is not a straightforward relationship between high financial rewards and good societal outcomes. This isn’t just an intellectual exercise – it has big implications for the way in which our society and economy are structured. Financial incentives are very powerful, and we tend to shower them on some of the professions that are the most socially and environmentally costly. This promotes undesirable behaviour, while positive activities are discouraged.
* Myth 1: The City of London is essential for the UK economy
Access to finance for everyone is vital for the UK economy to function. Yet the City of London has primarily been concerned with an aggressive quest for profits. This has heaped the worst financial crisis for a century on all parts of the economy. Even those closest to the City are increasingly sceptical about its value to the UK economy. On best estimates it contributes 3 per cent a year in value added compared to 12.5 per cent value added contributed from manufacturing.
* Myth 2: Low paid jobs create a ladder for people to work their way up – opportunities to advance are open to all
The level of income inequality in the UK means that high earners can protect their position and that of their children by buying education, assets and advantage. The ladder that might offer a way up for those on low incomes is effectively kicked away. The only way to improve equality of opportunity and outcome is to shorten the ladder in the first place.
* Myth 3: Pay differentials don’t matter, so long as we eradicate poverty
Of course poverty matters. But increasingly it is not absolute levels of poverty alone but the differences between people that contribute to social problems such as crime, ill health, poor educational attainment and addiction. In focusing so much on improving the lot of those on very low incomes, we have ignored the differentials that underpin what has become a two-tier society.
* Myth 4: We need to pay high salaries to attract and retain talent in the UK
Our case studies show that high salaries don’t necessarily reflect talent. Even if they did, it is not clear that the best and brightest would be prepared to uproot their families and hike across the world for higher wages. The evidence suggests that more equal countries manage to retain their fair share of innovation and cultural capital.
* Myth 5: Workers in highly paid jobs work harder
People at the bottom of the income distribution scale spend more time on domestic and caring responsibilities than their highly paid counterparts. They are also more likely to have more than one job, and for many that is the only route out of poverty. When we take this into account, it becomes clear that those who are paid less work just as much (or even more) than the better off.
* Myth 6: The private sector is more efficient than the public sector
Work that is cheap is not necessarily work that is effective. This myth that the private sector is mor efficient has motivated the increase in competitive tendering of public services to private contractors, and has been used to justify lower unit costs (and lower wages). However, lower prices are sometimes secured at the cost of service quality, suggesting that paying higher wages could in fact be more efficient.
* Myth 7: If we tax the rich, they will take their money and run
Intuitively we understand that decisions on whether to emigrate are far more complex than how much people earn. They depend on a multitude of factors – not only financial circumstances but also cultural familiarity, environment, proximity to friends and family, and quality of public services.
* Myth 8: The rich contribute more to society
The rich pay proportionately less tax than the poor, and many of our tax streams such as council tax and VAT are highly regressive. The rich even give less in relative terms to charity than the poor.
* Myth 9: Some jobs are more satisfying, so they require less pay
Job satisfaction is related to a number of factors. Autonomy, control in the workplace, income and status all contribute towards a sense of satisfaction and fulfilment at work. If high pay is partly intended to compensate for risk, stress and long hours then we would expect dangerous jobs to be well rewarded. Fishing is the most dangerous job in Britain, with roofers and scaffolders also high up on the danger list, and waste recycling collectors are at number 18. Yet in none of these industries are rank-and-file workers highly paid.
* Myth 10: Pay always rewards underlying profitability
It is becoming increasingly apparent that there is only a weak correlation between pay and executive performance. In 2008, for example, the UK’s top companies lost almost a third of their value while the bosses of these companies enjoyed a 10 per cent leap in their basic salaries. Empirical studies have demonstrated that pay arrangements are geared towards serving the financial interests of managers, not shareholders.”
2. Policy Recommendations
“* End the policy silence on high pay. nef has previously advocated a national maximum pay differential. This has been echoed recently by Compass and others with calls to establish a High Pay Commission. Its task could be to examine what the appropriate differentials should be. The Royal Navy, for example, has had a de facto differential of eight, whilst some Japanese firms voluntarily impose pay ratios limiting the gap between the top and bottom pay. Determining these multiples should be informed by the concept of social value creation.
* Learn from the successes of anti-discrimination legislation. Explore the possibility of positively discriminating towards people from low-income backgrounds to level the playing field in access to highly paid professions.
* Build social and environmental value into prices. Until goods and services reflect the real costs and benefits of their production, incentives will be misaligned with the kinds of positive behaviours society wishes to promote. Getting the prices right would affect relative profitability and so would align what wages could be paid with the value that is created. Consumption and corporation tax are two vehicles for doing this, but they need to be applied in a progressive way.
* Introduce more progressive taxation. The wealthiest do not pay their fair share of tax and the very wealthy may pay none at all. Redistribution, particularly of assets and land, is an effective way both to offset inequality and to reward jobs that the market does not. Closing tax loopholes would also be a good place to start.
* Launch a green industrial policy. We have an unprecedented opportunity to make environmental progress while also addressing wage inequality. The time has come for a new industrial policy, creating green jobs to replace the middle-income, semi-skilled jobs that have been wiped out in manufacturing.
* Encourage new forms of ownership. Mutually owned building societies, co-operatives and land trusts are all models in which ownership takes a more collective form, and benefits are more evenly shared.
* Radically reform the role of the City. It is time to return finance to its role as servant, not master of the economy. Instead of a monoculture of mega-banks deemed too big to fail and answerable only to the demands of private shareholders, we need a range of different financial institutions that are focused on social value creation. Initiatives such as a financial transaction tax would also reduce the harmful effects of trading.
* Invest in universal child care and paid parental leave. Child care provision in the UK often reflects and reinforces socio-economic and gender divisions. Making high-quality, affordable care available to all gives parents – particularly women – a better choice over returning to work and provides children with greater equality of opportunity. Extending parental leave, especially to fathers, would be a further investment in positive child development for the benefit of society. These provisions could be entirely met by recouping the money lost to society through tax avoidance by the wealthiest. This valuable investment would also increase gender equality by improving career options for women.”