The Value of Human Life is Lost in Current Productivity Measurements, says Peter van Bergeijk of the ISS
An interview with Peter van Bergeijk, an Economics Specialist at the International Institute of Social Studies, Erasmus University, Rotterdam
Peter van Bergeijk is a professor of international economics and macroeconomics at the International Institute of Social Studies (ISS), based in the Netherlands. He is also the author of Pandemic Economics, which will be published in autumn 2020 by Edward Elgar Publishing. He argues that extra hygiene measures now in place following Covid-19 must be reflected in official productivity statistics.
Productivity has become a pressing concern among economists across Europe in recent months as nations try to contain the impact of Covid-19. Previous economic crises have shown that businesses tend to scale back on investment and conserve cash in times of uncertainty. So how can business owners and managers boost productivity at a time when they are likely to be mindful of costs? In this special report on productivity, Soldo speaks with leading European economists and business specialists to find the solution.
Peter van Bergeijk, a professor of international economics and macroeconomics at the International Institute of Social Studies (ISS), says technology is the key to pandemic resistance. Had the coronavirus outbreak occurred in 1990 when teleworking, e-learning and e-commerce did not exist, the crunch of economic activity would have been far worse than today.
He adds that businesses and workers have adapted well, and that the pandemic will change the way work is done in the future as workplaces adapt to new hygiene practices.
“Flexibility has been the surprise of the pandemic and it has made me happy to see ingenuity of solutions and adjustments of business strategies in shops and factories. From one day to another we moved to a new environment – this would have taken a decade had the pandemic not brought this forward,” he says.
Companies take a keen look at productivity because higher productivity means lower labour costs per product. This is important for company profits and for giving firms competitive advantage. Growth occurs if both employment and labour productivity increases at the same time.
Productivity is the ability to do something more efficiently, in less amounts of time. There are two ways this could be achieved. Firstly, by teaching employees to do something quicker, and secondly by firms investing in technology and computer programmes to speed up processes.
Business strategies need to consider wider risks such as future pandemics
Van Bergeijk believes the Covid-19 pandemic has meant workplaces have been more willing to invest in digital processes that allow people to do their work remotely. This could boost efficiency and will ultimately benefit firms and the wider economy in the long run.
He says: “The good thing that has come from this crisis is that we now see working from home as an important element of the new world of work. This will have a lasting impact and will change the structure of workplaces. Business strategies need to consider wider risks such as future pandemics and reduce dependence on one location. There is also a matter of hygiene in the workplace. Incorporating guidance from Covid-19, such as implementing social distancing and increasing the use of hand sanitiser, will reduce sick leave within companies.”
Countries across Europe have struggled with productivity growth since the financial crisis, although some have fared better than others. The manufacturing powerhouses of Germany and France have fared better than the UK, for example, which instead has a strong reliance on the services sector.
It is too early to say how the current coronavirus crisis could impact nations in the long term but Van Bergeijk says companies should focus on their own strategy and make sure they stay ahead of competition. “It is a matter of survival. Your competitors will invest and will find a better strategy. So you have no choice. This is the time when entrepreneurship is the determining factor on which companies will survive and which will go under.”
There has been lots of debate around the way productivity is measured, with some arguing there is too much of a narrow focus on the price of goods. Because statistics offices measure productivity based on the end price, they do not take into account how the product is produced.
Van Bergeijk puts it this way: “A beer is a beer, but if it is served in a crowded place then there is a high risk of infection. Serving the beer safely costs more and produces something that we do not count: safety. These extra safety precautions are not covered in the price. It is unclear how this is going to play out, but it depends on the value that consumers attach to safety. People may be willing to pay a higher price for a safe, well-managed establishment.”
This could mean productivity numbers remain low for some time post the peak of the coronavirus pandemic. Van Bergeijk adds that industries will adapt to the new post-pandemic world, but that it will take time for statistics offices to catch up with the changing trends. He says official figures are likely to focus on the bad news first, such as industries that are cutting back or in decline. But it is harder to measure the emergence of new activities, such as the added safety precautions many firms have in place now.
“We know that existing production facilities are becoming less productive because more labour is needed. There is more cleaning to be done and more security personnel needed to ensure social distancing. Here in the Netherlands, shopping carts are cleaned regularly and supervisors ensure that distancing is possible, so that has created new jobs but will not have a direct correlation to higher sales. Statistics are always weak for new activities and for new sectors and industries. It takes time to survey small businesses. It takes time to redefine new outlets and products,” he says.
From a long-term perspective, the traditional way of observing economic activity has missed an essential part of the puzzle, which is the value of human lives, and this must change now.
He adds that it is a blessing that some workers are now able to work from home. It has been accepted and organised in a very short period and he believes home-working will become more common in business now. It allows some workers to become more productive as they can work away from distractions, and it has a positive social impact as people will spend less time commuting with more time to focus on work, which is also good for levels of productivity. But the official statistics will only focus on the negatives, he says, such as a significant reduction in output for the oil industry – a sector that typically performs strongly in productivity figures.
Van Bergeijk says that accounting models and statistics focus too much on what can be readily observed in monetary terms and on what generates income. In his new book, Pandemic Economics, which will be published by Edward Elgar later this year, Van Bergeijk argues that health impacts will become more important to economists in the future.
“The superspreading of Covid-19 has been tied to live music performances, cruises, meatpacking plants, ski resorts and restaurants. These are also events that generate wages and profits and thus boost the economy. Statistical agencies have focused on the economic cost of stopping these activities to control the virus. But they do not take into account the cost of a human life, which economists believe is worth anything between $3m-$9m. From a long-term perspective, the traditional way of observing economic activity has missed an essential part of the puzzle, which is the value of human lives, and this must change now.”
Van Bergeijk’s key conclusions:
- Companies must be flexible and invest in technologies that mean they can still operate during future pandemics
- Home-working will become more common, so firms must invest in digital processes that allow people to do their work remotely
- National statistics offices must place less dominance on market prices when measuring productivity in future
- Businesses must adapt to protect against future pandemics, such as enforcing more space between employee workspaces and improving hygiene and sanitation
- The way productivity is measured must be updated to reflect the extra hygiene measures businesses now have in place