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Mathieu Provencher

How much money is your life worth?


(picture from Wix's library)

Hello People of this blog!

I’ve got a new uncomfortable subject for all of you: what is the value of a life? In Economics, we try to put a value on everything that relates to human choices… this includes the value of products, which can be fairly straightforward, the value of time, which is already a bit trickier, the value of wellbeing, which is very difficult to measure, and even the value of your life.

To you, your life is probably worth something close to everything you have or much more (if you could force others to pay to save your life). However, this is quite unhelpful in trying to understand how people make choices. The amount of money others are willing to pay for your life, however, is very useful!

I feel the need to repeat something I try to hammer down my student’s heads over and over again: Economics is NOT about money! We are not concerned about the monetary value of things because we think money is important… Economists use monetary valuation in order to compare things with each other. Money is just a measure of the worth of something, it is not worth anything in itself. If you care about money in itself, please go in Finance or go see a psychologist, Economics is not going to be a good field for you.

SO! We try to value a person’s life in order to compare it to other things… compare life to what exactly? This question tends to arise when worker’s lives can be in danger because of their work. Society is then faced with an interesting question: how much should we spend to protect the life of these workers? If we were to make their life (at work obviously) almost completely safe, which is possible in most cases, then we would have to spend a lot of money, which would mean higher taxes in the case of public workers or higher price of the product in the case of private ones.

You probably already figured out the next step in our analysis: if we find that the life of those ‘endangered’ workers is worth a lot, we should divert a high amount of money (through taxes or prices) towards their safety… if we think their lives are not worth that much then we don’t divert much money towards that same goal.

This whole concept of valuation of life can be applied to many different contexts. We can use it for security (hiring more police and having better security infrastructure), road and railway safety (more maintenance and better technology), or anything else in which people’s lives or health can be affected (including food safety and medication regulation). The amount of money people are willing to pay to guard against somewhat random death (car accident, spontaneous homicides, weather events) is called the "Value of a Statistical Life".

This means that YOUR life has been given a monetary value when the government decided to spend a certain amount of money (big or small) on your protection and safety… by extension (in democracies), it means that society has given a value to the average person’s life. People are willing to pay up to a certain amount of money, in taxes and price increases, towards safety and security, which means that they value the life of everyone around, including their own, that certain amount of money (approximately, there are many rounding errors in this simplification but the concept is correct).

Since we’ve heard about a few mining controversies (South Africa and Chile for example) in the past few months, let’s use the mining industry to illustrate a bit this concept. In this market, there are two channels that pay for the safety and security of mining workers: price of the product (private channel) and regulation with monitoring (public channel). If consumers really care about the safety of mining workers, they will give a good price to the firm and require workers to be well treated (in order to buy from the firm). If governments really care about them, they will impose and monitor strict labour laws (that can be costly for the government) that protect these workers.

A 2010 article from the BBC mentions some of these issues in the context of the mining industry (http://www.bbc.com/news/world-latin-america-11533349 if you want to read the whole thing).

If you don’t feel like reading it, and I don’t blame you for it, let me write down some of the data found in the text: it is estimated that an average of 12,000 people are killed in mining-related accidents every year; The International Labour Organisation stated that the mining industry was responsible for around 8% of fatal work-related accidents worldwide although they employ only 1% of all workers; Some countries are much more committed to the improvement of safety of their workers than others.

To me, this shows that the value of a life of a worker is different in different industries (within the same country) as well as in different countries (within the same industry). It does NOT mean that people are actually more valuable when they come from a specific industry or country… it simply means that, for a reason or another (culture, education, social contract, income, empathy, government priorities, etc.), society is willing to pay more for the protection of some workers and less for others. Also, some countries are willing to part with more of their taxes to insure the safety of their workers while other countries divert very few resources towards that goal.

How valuable is your life… from your fellow citizen’s perspective?

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