The private sector is exploring new ways to measure its societal impact, moving beyond traditional economic indicators. We developed a new model based on social determinant of health studies. The main insight is that not all jobs provide positive societal value. Jobs at all cost might not be the best strategy for creating shared societal value and this methodology allows to measure it.
Jobs are at the core of every political campaign, in all economic discourse and indicators used, as well as in the mind of everybody. Jobs are here to provide us with what we need, food, shelter, clothes, etc. They are here to make us climb the social ladder and to give sense to our lives sometimes. When talking about jobs in general, we associate to them a positive societal impact.
However, we heard too many times that economic development or even a protectionism policy will provide jobs to the many, only to experience that they were short term, sometimes unsafe and degradant jobs, without talking about the unfair wages. Inequalities are increasing in all part of the world and the society is challenging the private sector more and more about jobs’ impact. Measuring the number of jobs, or their aggregate economic value, is not a good indicator of societal benefit, to the same extent that GDP does not correlate with social benefit.
Jobs can have both positive and negative effect on our lives, influencing even our health and life expectancy. The research field called “social determinants of health” covers those relationships extensively, with a first revealing publication in 2008 from the World Health Organization. The studies published show that health inequities are driven by social inequalities along our lives, including income inequalities. It has been shown that the absolute level of income of a country is a poor indicator of social benefit. In some developed countries, such as the USA, health inequities between the poorest and the richest are beyond ten years of life expectancy, without even considering life quality issues. In Western Europe, we observe about a few years of life expectancy differences between the poorest and the richest, while in eastern European countries we find similar results than in the US. And those differences are coming solely from social determinants, not from behavioral patterns, environmental factors or even genetic predispositions.
In order to answer the question “what is the social impact of jobs and employment in general?”, a model was developed using the finding of the social determinants of health studies and applied to the private sector context. Nestlé agreed to explore this topic, to support its sustainability strategy on human rights and to move beyond too simplistic economic indicators showing jobs’ impact as only positive.
To start with, we had to define what we measure. The goal of any person is to live a good and long life, so the ambition of the model is to measure exactly this despite the challenge it represents. This is well known as DALYs, or Disability Adjusted Life Years, an indicator often used in public health and policy. DALYs encompass two concepts which are “years of life lost” (early death) and “years of life disabled” (years with injuries or diseases). Measuring the impact of employment and income on our lives is the ultimate measure of social impact for a company.
The model developed is based on Eurostat and WHO statistics. It shows that for selected European countries, one year of equivalent wage in the private sector, for the 1st decile (the 10% the poorest), would result into 0.1 to 0.2 DALYs (10 or 20% of a year of life lost), while it drops well below 0.05 DALYs for the 5th decile (median income) and to 0 above the 8th decile. Those results are then applied to all the wages delivered along the value chain of a company, classified per income decile classes, leading to different health impact.
Those results show the link between income and health of employees, which is totally new in the private sector and in social capital impact valuation as well. The underlying assumption is that employment conditions and environment’s inequalities are a key health determinants in the world on which the private sector has an important influence. Within employment conditions we find the income elements of course, but also the reward and control elements which are important aspects on which to build to create better jobs. It is not always about the money.
A white paper published summarizes the finding of this model applied to the case of a brand of Nestlé. The scope of the case study encompasses the value chain of an agricultural product from field to the final product. The figure below shows different indicators (from left to right): jobs created (in Full Time Equivalent, FTE), economic impact (which is simply the aggregated economical value of the jobs reflected by the respective wages) and social impact (using the model developed and described in this article). The results are presented per income decile (each decile represents 10% of the population, from the poorest to the richest which are included in the 10th decile).
Economic impact and jobs are correlated, with the former giving usually more weight to high wages. However when looking at the social impact, we observe very clearly than impact can be positive or negative. Note that in this graph, positive results represent negative impact. Workers at the farms represent the highest negative impact in this case, while factory workers at Nestlé have relatively good conditions which translate into a positive impact. The baseline against which the social impact is measured is the living wage, baseline which is discussed more in details in the white paper and that is an element of further research as well.
The main insight provided by this new model is that not all jobs provide positive societal value. Jobs at all cost might not be the best strategy for creating shared societal value however leverages exist in the form of income, control and rewards, in addition to all the other social benefits and work environment that a company can provide.
This model also provides the ability for companies to identify where they provide positive and negative societal value related to employment. This insight is key to support any sustainability strategy in line with the SDGs, and to mitigate risks (e.g. license to operate, reputation, employees’ engagement, etc). This model represents a first step towards better sustainability metrics in the private sector, leading to better decision-making. It supported as well the development of the Social Capital Protocol, which is being published this year.
The white paper can be downloaded here.