S-eco-costs in S-LCA and TCA

This webpage describes the socio-economic costs (s-eco-costs) method for monetization of ‘external’ socio-economic burden for workers.
The s-eco-costs are the marginal prevention costs to reach a sustainable level (the Performance
Reference Point, PRP) for wages and are the monetary compensation costs beyond the PRP to account for unacceptable exploitation of workers.
The s-eco-costs (in €) include five sub-indicators, proposed as a base-line for several social issues:

Minimum Acceptable Wage (the long term sustainable wage, or the short term decent living wage)
Child Labor (forced labor, not able to attend school)
Extreme Poverty (derived from World Bank absolute poverty line)
Excessive Working Hours (forced labor, involuntary)
Occupational Safety and Health (based on statistics of ILO)

There are basically two ways to calculate the burden of unacceptable exploiting of workers: (1) calculation the damage via impact pathways, which are cause-effect chains (2) the use of so called Performance Reference Points (PRPs). In a broad study on how to define and structure S-LCA (UNEP/SETAC, 2009) the method of the PRPs is preferred for quantitative assessments (see page 70), since “cause-effect relationships are not simple enough, or not known with enough precision to allow quantitative cause-effect modelling”. In fact this is the same argument to prefer prevention based indicators in LCA (in contrast to damage based systems) in the eco-costs system.

The s-eco-costs of a product are based on the salaries per working hour, the working conditions and the required time to make a product. In formula:
‘total s-eco-costs of a product’= ‘hours to make a product’ x ‘s-eco-costs (€/hour)’

Content

These data must be measured at the factory and based on the actual situation. Data on salaries are to be calculated in Int $ PPP (Purchasing Power Parity), because the normal exchange rates of currencies would give the wrong picture for benchmarking between different countries.
Note: 1 Int $ PPP is approx. 0.72 € (1019).

This webpage gives a summary of the calculation method. The details of this method can be found in (Van de Velden et al. 2017, Supplementary Materials).

Minimum acceptable Wage
(long term and short term)

The Minimum Acceptable Wage, Long Term, is the level of minimum wage in poor countries at which the current unsustainable level of economic migration is likely to vanish, even at ‘open borders’ (i.e. free flow of workers without strict working permits and without borders with fences). This long term sustainable level is based on statistical data, see (Van der Velden et al. 2017, supplementary materials): 5.79 US$/hr.
The Formula:
s- eco-costs-MAWlt = 0.72 (5.79-Sal) if Sal <5.79 s-eco-costs-MAWlt = 0 if Sal >5.79
where:
s-ecocosts-MAWlt = s-eco-costs of Minimum Acceptable Wage Deficit, long term (€/hr)
Sal = actual net salary per hour (Int $ PPP/hr)

The Minimum Acceptable Wage, Short Term, is the so-called ‘decent living wage’ (Anker and Anker, 2017) when available for a country. When Anker&Anker data are not available apply the alternative calculation.

Child Labor

The s-eco-costs of Child Labor is calculated on the basis of the ‘lost life years’ of a child (age below 15
years), where 2240 h of work in manufacturing is set equal to 1 DALY as default value, and 1 DALY is valued at € 80,000. In agriculture these norms are slightly different. For details see (Van der Velden et al., 2017, supplementary materials).

The Formula:
s-eco-costs-CLindustry = 35.71 (Hr/2240)
s-eco-costs-CLagriculture = 35.71 (Hr-560)/2240
for Hr > 560 hr/year
s-eco-costs-CLagriculture = 0 for Hr < 560 hr/year where:
s-eco-costs-CLindustry = s-eco-costs of Child Labor in industry (€/hr)
s-eco-costs-CLagriculture = s-eco-costs of Child Labor in agriculture, services and domestic (€/hr)
Hr = working hours per child per year (hr/year)

Extreme Poverty and Slavery

Extreme Poverty is based on the poverty line of the World Bank (2015) of 1,90 US$ per person per day. It is based on the absolute minimum amount of money needed to feed a family, resulting in the absolute minimum net wage that is required: 0,935 Int $ PPP per hour. Since the food price is relatively unchanged (FAO Food Price Index), this poverty line is not changed.
For a wage of zero (slavery), the indicator is proposed as 1 DALY/year. The reason for this default value, and the deliberations why, is similar to that of Child Labour. For details see (Van der Velden et al., 2017, supplementary materials)

The Formula:
s-eco-costs-EP = 35.71 (0.96-Sal)/0,935 if Sal <0,935 s-eco-costsEP = 0 if Sal >0,935
where:
s-eco-costs-EP = s-eco-costs of Extreme Poverty (€/hr)
Sal = actual net salary per hour (Int $ PPP/hr)

Excessive Working Hours

This issue is related to the fact that at some production sites workers are forced to work more than 48 hr per week, leading to exhaustion. When this is involuntary, it can be regarded as a form of modern slavery. To quantify the Excessive Working Hours we propose the DALY as indicator, as we did for Child Labor and Extreme Poverty.

The Formula:
s-eco-costs-EWH = 35.71 (Hr-2240)/2240
only for Hr >2240
where:
s-eco-costs-EWH = s-eco-costs of Excessive Working Hours (€/hr)
Hr = working hours per year (hr/year)
In case of very irregular working times, it is advised to do the calculation on a weekly or monthly basis.

Occupational Health and Safety (OSH)

This issue is related to the work related safety and health in a company. For detailed information the reader is referred to (Van der Velden at al. 2017, supplementary materials).

The Formula:
s-eco-costs-OSH = 35.71 [(CA x PA)+(CM x PM)]
where:
s-eco-costs-OSH = s-eco-costs of OSH (€/hr)
PA = number of accidents and work related illness causing over 4 days’ absence per year/number of workers
PM = number of work related death per year/number of workers
CA = average lost life year per case (DALY)
CM = average lost life year per calamity (DALY) = average life expectancy in a country – age of the worker

Avoidance of double counting

Fig. 2.6 shows the characterization lines for extreme poverty and fair wage deficit. This figure demonstrates that – to avoid double counting – the fair wage deficit should not be accounted for when
the wage is lower than 0.823 Int $ PPP per hour, or 0.68 €/hr. In that case only the s-eco-costs of extreme poverty should be taken into account (and the s-eco-costs of fair wage must be left out).

Figure 2.6 The s-eco-costs as a function of the wage

References

UNEP/SETAC, 2009. Guidelines for Social Life Cycle Assessment of Products.

UNEP/SETAC, 2011. Towards a Life Cycle Sustainability Assessment.

Van der Velden NM, Vogtländer JG. 2017. Monetisation of external socio-economic costs of industrial production: A social-LCA-based case of clothing production. Journal of Cleaner Production 153 (2017) 320-330

Van der Velden NM, Vogtländer JG. 2017. Monetisation of external socio-economic costs of industrial production: A social-LCA-based case of clothing production. Supplementary Materials.

Anker R, and Anker M. Living Wages Around the World, Manual for Measurement. 2017. Edward Elgar Publishing, Cheltenham, UK
PRPs of decent living wages of countries can be found at: https://www.globallivingwage.org/ , https://wageindicator.org/salary/living-wage, https://www.livingwage.org.uk/ , for agriculture https://www.living-income.com/ , and for textiles https://www.fairwear.org/