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The purpose of Open Social Value Bank is to help measure the changes we create in society that increase wellbeing, expressed as changes in a person's life satisfaction.
The measurement of life satisfaction based on subjective wellbeing methods is based on the work of Nobel Prize winner Kahneman, as well as Diener's development of the wellbeing measure "satisfaction with life scale (LS)".
Research shows that there is a strong correlation between LS and e.g. employment, productivity, physical and mental health, social relationships, loneliness, stress and longevity. employment, productivity, physical and mental health, social relationships, loneliness, stress and longevity.
OSVB builds on the UK Treasury's Green Book2 and Frijters and Krekel (Oxford University, 2021)3 and uses the Subjective Wellbeing Valuation method to put a dollar value on wellbeing.
The life satisfaction question successfully measures many important aspects of life. It is broadly predictive of many things that we would intuitively think would be associated with wellbeing, such as marital stability (Carr et al., 2014; Margelisch et al., 2017), longevity (Koivumaa-Honkanen et al, 2000; Chida and Steptoe, 2008; Diener and Chan, 2011; Steptoe and Wardle, 2011) and labor productivity (De Neve and Oswald, 2012; Oswald et al., 2015).
It is positively associated with a number of desirable states, such as close relationships (Jakobsson et al, 2004; Kesebir and Diener, 2009; Gustavson et al., 2016), social relationships (Powdthavee, 2008), physical and mental health (Layard et al., 2013; Layard, 2018), employment (Clark and Oswald, 1994; Blanchflower and Oswald, 2004), and social status (Alpizar et al., 2005; Anderson et al., 2012).
The life satisfaction question is easy to collect, easy to answer, and easy to interpret. It is probably the most widely used wellbeing measure in the world and has been collected for millions of respondents in almost every country in the world, starting more than fifty years ago. The question has been used in major international data collections such as the World Happiness Report, Gallup World Poll, Global Flourishing Study, OECD, European Social Survey (ESS), European Values Survey (EVS), Survey of Health, Ageing, and Retirement in Europe, and many surveys in Denmark.
1OECD (2020), How's Life? 2020: Measuring Well-being, OECD Publishing, Paris
2M_Treasury (2021). "Wellbeing guidance for appraisal: supplementary green book guidance.
3Frijters, P. and C. Krekel (2021). A handbook for wellbeing policy-making: History, theory, measurement, implementation, and examples, Oxford University Press.
References: Carr, D., Freedman, V. A., Cornman, J. C., and Schwarz, N. (2014). Happy Marriage, | Happy Life? Marital Quality and Subjective Well-being in Later Life. Journal of Marriage and Family 76(5): 930-48. | Margelisch, K., Schneewind, K. A., Violette, J., and Perrig-Chiello, P. (2017). MaritalStability, Satisfaction and Well-being in Old Age: Variability and Continuity in Long-term Continuously Married Older Persons. Aging and Mental Health 21(4): 389-98. | Koivumaa-Honkanen, H., Honkanen, R., Viinamäki, H., Heikkilä, K., Kaprio, J., and Koskenvuo, M. (2000). Self-reported Life Satisfaction and 20-year Mortality in Healthy Finnish Adults. American Journal of Epidemiology 152(10): 983-91.| Chida, Y., and Steptoe, A. (2008). Positive Psychological Well-being and Mortality: A Quantitative Review of Prospective Observational Studies. Psychosomatic Medicine 70(7): 741-56.| Diener, E., and Chan, M. Y. (2011). Happy People Live Longer: Subjective Well-being Contributes to Health and Longevity. Applied Psychology: Health and Well-Being 3 (1): 1-43. | Steptoe, A., and Wardle, J. (2011). Positive Affect Measured Using Ecological Momentary Assessment and Survival in Older Men and Women. Proceedings of the National Academy of Sciences 108(45): 18244-8. | De Neve, J. E., and Oswald, A. J. (2012). Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed Effects. Proceedings of the National Academy of Sciences 109(49): 19953-8. | Oswald, A. J., Proto, E., and Sgroi, D. (2015). Happiness and Productivity. Journal of Labor Economics 33(4): 789-822. | Jakobsson, U., Hallberg, I. R., and Westergren, A. (2004). Overall and Health-related Quality of Life among the Oldest Old in Pain. Quality of Life Research 13(1): 125-36. | Kesebir, P., and Diener, E. (2009). In Pursuit of Happiness: Empirical Answers to Philosophical Questions. In The Science of Well-being: The Collected Works of Ed Diener. Dordrecht: Springer, pp. 59-74. | Gustavson, K., Røysamb, E., Borren, I., Torvik, F. A., and Karevold, E. (2016). Life Satisfaction in Close Relationships: Findings from a Longitudinal Study. Journal of Happiness Studies 17(3): 1293-311. | Powdthavee, N. (2008). Putting a Price Tag on Friends, Relatives, and Neighbors: Using Surveys of Life Satisfaction to Value Social Relationships. Journal of Socio-Economics 37(4): 1459-80. | Layard, R., Chisholm, D., Patel, V., and Saxena, S. (2013). Mental Illness and Unhappiness. In J. F. Helliwell, R. Layard, and J. D. Sachs (eds), World Happiness Report 2013. New York: Sustainable Development Solutions Network, pp. 38-53. | Layard, R. (2018). Mental Illness Destroys Happiness and Is Costless to Treat. Global Happiness Policy Report. Global Happiness Council, pp. 26-51. | Clark, A. E., and Oswald, A. J. (1994). Unhappiness and Unemployment. Economic Journal 104(424): 648-59. | Blanchflower, D. G., and Oswald, A. J. (2004). Well-being over Time in Britain and the USA. Journal of Public Economics 88(7-8): 1359-86. | Alpizar, F., Carlsson, F., and Johansson-Stenman, O. (2005). How Much Do We Care about Absolute versus Relative Income and Consumption? Journal of Economic Behavior and Organization 56(3): 405-21. | Anderson, C., Kraus, M. W., Galinsky, A. D., and Keltner, D. (2012). The Local-ladder Effect: Social Status and Subjective Well-being. Psychological Science 23(7): 764-71.
With a well-established correlation between wellbeing and life satisfaction and life satisfaction and income, we have the elements needed to estimate the monetary value of social parameters such as depression, stress and loneliness.
In OSVB, you can find a number of social values that are valued from the above steps, based on English experiences and data. In the next update of OSVB, the values will gradually be based on Danish data.
We define the value of changes in life satisfaction (measured on a scale of 0-10) by the unit WELLBY. A one-point change corresponds to one WELLBY, per person per year. We monetize the value of a WELLBY by establishing individuals' willingness to pay for a change in life satisfaction. Willingness to pay can be established in different ways. In OSVB, we basically follow the approach used in the UK Treasury - Wellbeing Guidance for Appraisal: Supplementary Green Book Guidance1. In future versions of OSVB, we will work on establishing willingness to pay using specific Danish data and different methods, including discrete choice experiments and quasi-experimental approaches using existing survey and register data.
The method OSVB is based on uses the well-established measure QALY (quality adjusted life years) and examines what it equates to in terms of WELLBYs - i.e. how many WELLBYs correspond to one year of life. The UK Treasury shows that a QALY is associated with a 7 point change in life satisfaction (going from 8 to 1). In Denmark, we do not have a monetary value for a QALY. However, the Danish Ministry of Finance has valued the "Value of a life year" - a VOLY, which is based on the value of a statistical life2. The UK Treasury has chosen to value a QALY3 and a VOLY the same, so one VOLY equals one QALY. Based on this, it is assumed that the Danish VOLY value can be used to value our WELLBY. In 2021, the Danish Ministry of Finance valued the value of one year of life, one VOLY, at DKK 1.3 million per year4.
Based on the above assumptions, we can derive a Danish value for one point of life satisfaction.
Willingness to pay for a WELLBY = VOLY/(8-1) = DKK 1,300,000/(8-1) = DKK 185,714 (2021 prices)
A change of one point on the life satisfaction scale thus has a value of DKK 186,000 per person per year (2021 prices)
Note: As far as possible, we recommend that causal estimates are established.
Sources: 1UK Treasury Greenbook2Ministry of Finance's documentation note on the value of static life and statistical life year (2019) 3Ministry of Finance's key figures catalog (2021) 4A scoping study on the valuation of risks to life and health: the monetary value of a life year (VOLY).
Economic assessments are an essential part of society's decision-making and prioritization processes.
In the areas of traffic, environment and climate, both socio-economic and budgetary economic analyses of how new initiatives affect citizens are already included.
Investments in social welfare are often based only on budgetary values and overlook the social benefits the investment creates.
The total value of social investments may be underestimated, and that the potential for measuring wellbeing expressed through life satisfaction and valuing social change is significant.
There is a need for a common approach to include social value creation in decision-making and prioritization processes.
Limitations: Note that a distinction is made between capitalization and monetization. OSVB does not put a value on the capitalizable budgetary changes, as these values are already in existing calculation models, e.g. the SØM model.
1 SØM: https://socialstyrelsen.dk/tvaergaende-omrader/socialstyrelsens-viden/som-og-okonomiske-analyser/som
2 Social value (subjective wellbeing valuation): Subjective Wellbeing Valuation (1) : Frijters & Krekel (2021): A Handbook for Wellbeing Policy-Making: History, Theory, Measurement, Implementation, and Examples
3 Finansministeriet (2017): Vejledning i samfundsøkonomiske konsekvensvurderinger
A number of social and health issues can be prevented or alleviated with targeted loneliness initiatives that increase the wellbeing of the citizen and reduce social and health care costs. In Denmark, there are an estimated 600,000 lonely citizens, which has a large economic burden. The cost of health and care, extra early retirement pensions and lost production due to sick leave alone is estimated to cost society DKK 7.4 billion annually, while the well-being cost for the 600,000 lonely citizens is estimated to be DKK 13.5 billion.
The initiative aims to treat lonely adults through internet-based cognitive behavioral therapy (psychological treatment). The initiative lasts 8 weeks, costs a total of DKK 400,000 and has a total of 73 participants. It is estimated that the target group can achieve an effect size of 4.65 measured on the UCLA-20 scale.
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The Job Satisfaction Knowledge Center collects representative data on Danes' job satisfaction through their GAI survey. Job satisfaction is measured on a scale from 0-100, as an average of three questions that shed light on the individual's job satisfaction. In a series of reports, in collaboration with Kraka Advisory, they present calculations on the value of increasing job satisfaction among employees in Danish companies. Consequences of low job satisfaction include higher sick leave, higher likelihood of job change, earlier retirement and lower life satisfaction.
The report shows a fictitious example of how the value of life satisfaction can be used in a socio-economic analysis of the value of an initiative. The calculations are based on a fictitious company's efforts to increase job satisfaction among their employees. The estimates are calculated on the basis of socio-economic values from the Job Satisfaction Knowledge Center and Kraka Advisory's reports and OSVB's value for changes in life satisfaction. To accommodate uncertainties, the potential benefit of increased job satisfaction for employee wellbeing is presented in a range of +/- 15% of the OSVB's value for life satisfaction.
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