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The Economic, Social, and Cultural Value of Volunteering to Tasmania

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By

, John Harvey, Dave Arthur, Anne Fisher, Courtney Webber, and Ian McMahon

 

Editor’s Note: In the past year or so, e-Volunteerism has published a number of perspectives on understanding and calculating the “value” of volunteer services, with authors agreeing that traditional money or wage-replacement cost formulas are woefully inadequate to reflect this challenge. In this adapted excerpt from The Economic, Social and Cultural Value of Volunteering to Tasmania, 2014, author Paul C. Muller and his team of researchers are the first to focus on volunteering in Tasmania, a State in Australia. The complete 114-page report, an abstract, and other supporting material are provided on the Institute of Project Management site.  In the excerpt here, the researchers discuss “benefits” of many sorts beyond cost-effectiveness or return-on-investment.


The volunteering sector has long been an enabler and driver of equitable growth in Australia, and as such has made a significant contribution to the welfare of the community. Beyond the specific altruistic purpose of each volunteering act, volunteering as a whole has been a vibrant source of knowledge, cultural and recreation exchange, enriching the lives of countless Australians. The extent of this contribution cannot be fully captured in financial statements.

The economic assessment of volunteering has therefore typically focused on quantifying the market replacement cost of volunteers. Professor Duncan Ironmonger of the Households Research Unit at the University of Melbourne has been at the forefront of research in Australia to address this issue. His reports on the economic value of volunteering in Queensland (Ironmonger, 2006, 2008), Western Australia (Ironmonger, 2009), South Australia (Ironmonger, 2011) and Victoria (Ironmonger, 2012; Ironmonger & Soupourmas, 2002) have used Australian Bureau of Statistics data from 1992 to the most recent Census of 2011 to arrive at dollar-quantified estimates of the replacement cost and other impacts of volunteering in those States over time.

Yet at the heart of any public investment decision is this basic question: Does the planned activity lead to a net increase in social welfare?

Although replacement cost analysis is a necessary step towards resolving the social welfare question, it does not distinguish costs from benefits. Similarly, such studies cannot be used to show the economy-wide impact of volunteering-induced expenditure; nor can they show the effects of volunteering on less tangible community outcomes such as productivity, civics, and individual well-being. It is for this reason that stand-alone replacement cost and economic impact analyses alone usually fail to influence mature policy decisions (Department of Treasury and Finance, 2005).

This report was commissioned by Volunteering Tasmania to quantify the economic, social and cultural value of volunteering to Tasmania.

The original contribution of this study is to apply the Institute of Project Management’s (IPM) Model of Value Creation (pp. 5-7 in the full report) to locate the discrete values of volunteering activity and, for the first time, illustrate the dynamic ways in which they interact.

Figure 1: The IPM Model of Value Creation

The IPM Model of Value Creation

The model depicts how individuals, businesses and governments use their time and money to enable volunteering in Tasmania, which alter the individual and community states of physical, human, social, and symbolic capital. This is then converted by users into a set of economically valuable outputs that impact upon the welfare of society.

In its application, the IPM Model of Value Creation adopts the best-practice principles of cost and benefit analysis to estimate the value of the unique cluster of activities that comprise volunteering. As the first known valuation of volunteering as an economic and cultural ecosystem within a defined region, this study is as much exploratory as it is conclusive. Further research into a number of areas is encouraged.

The socio-economic and cultural value of volunteering to Tasmania in 2014 is conservatively estimated to be $4.9 billion. This figure is much greater than previous estimates based on price or economic impact alone, yet is likely to be a significant underestimate given the limitations of the available data and forensic techniques.

The following selected highlights from the report reveal how this estimate was arrived at.

Productivity Benefits

A review of the productivity literature reveals that there are many different measures of productivity. In this report, two distinct expressions of productivity enabled by volunteering in Tasmania are identified.

The first is a traditional measure of input productivity. This is the financial return to producers that volunteering in Tasmania generates on the investments of capital, labour, energy, materials and services. It is estimated (see full report) that this was equal to $63.3 million in 2014, or a return of 9.4 per centon the $675.2 billion invested in total. To avoid double counting, however, this dollar amount is excluded from the gross reckoning.

The second dimension – relatively under-explored and unquantified -- is the productivity benefits which volunteering in Tasmania delivers to individuals, enabling them to be more effective and efficient in their work. This can be called aproductivity premium.

The Productivity Premium

Productivity is often defined as the ratio of a volume measure of output to a volume measure of input. In other words, if a business purchases a quantity of paint, brushes and canvases for X amount of dollars to produce a work of art to sell for Y amount of dollars, then the difference (or relationship) between X and Y is productivity.

Yet one question overlooked by the productivity literature is, “How does the act of engaging with an activity (for example, volunteering) change and/or enhance the actor’s productivity?” In other words, if I volunteer to satisfy what are essentially my leisure (or well-being) needs, to what extent is that satisfaction observable in my work performance? Does my employer receive a consequent productivity bonus?

Intuitively at least, this productivity premium is real, if hereto intangible; after all, a significant market in Tasmania is found in businesses sponsoring volunteering through workplace programs. The conclusion must be that there is some corporate benefit to be gained from employee volunteering – the question remains, however, what is its quantum?

With no previous studies to assist in this regard, we applied an iteration of the contingent valuation method (CVM) introduced in the earlier chapter on Methodology.

Volunteers were surveyed about the relationship between their attendance and immediately subsequent work performance. Respondents were asked to what extent they believed their volunteering interest impacted—positively or negatively—on their work performance. As a follow-up, they were asked to quantify this impact (in percentage terms).

A total of 43.2 per cent of respondents felt that volunteering had an average 47.9 per cent positive impact on their productivity, whereas 4.7 per cent felt that it had an average 9.8 per cent negative impact. This allowed us to estimate a productivity premium enjoyed by employers as a result of their employees’ volunteering using the following formula. 

Thus the extent to which attendance volunteering in Tasmania improved the productivity of individuals in 2014 (a benefit enjoyed by their employers) is estimated to be $1.2 billion.

This is the sum of self-reported positive and negative impacts, where the negative impacts are noted here as a dis-benefit—rather than a cost—as they are not an input into volunteering, but a negative outcome.

There is much need for additional research in this regard. For example, the conservative assumption is made that consumers only receive an increase in productivity from participating as a volunteer; however, it is also likely that those who are the recipients of volunteering may also experience productivity benefits. Further empirical research into the effects of volunteering on productivity would thus be well-received.

Civic Benefits

For the purposes of this study, a civic benefit is a contribution made by having volunteering in Tasmania that would otherwise have to be provided (presumably by the state) if the same community-wide standard of living were to be enjoyed. In other words, it typically represents a cost avoided by government.

From our research (see full report), the expenditure associated with volunteering is estimated to generate in the order of 5,379 jobs, 3,320 of which are full-time. This is a wage-equivalent benefit of $205.6 million directly returned to households, with an equivalent welfare cost avoided by government.

We also estimated that the taxes generated by volunteering-related or -motivated expenditure is $82.2 million. Note that the taxation receipts may not be directly proportional to the relevant investment of each tier of government. Nevertheless, as it is unlikely that the volunteering industry receives an equivalent quantum of re-investment from government, it could be argued that the direct tax returns from volunteering are used to finance other policy and social investments, such as hospitals and schools.

Donations of Time and Money

The labour of volunteers is another civic contribution of volunteering. As already stated, it is estimated that volunteers donated over 7.1 million hours to Tasmania in 2014. The replacement cost of this labour is determined by calculating what it would cost beneficiaries to employ people to perform the equivalent work.

Continuing the discussion commenced earlier in opportunity costs, it is presumed that each volunteer necessarily brings skills commensurate with their professional experience; therefore, it is not simply a case of replacing them with industry minimum wage labour.

It is also noted from our primary data, that in our sample of 700 Tasmanian residents, not one respondent volunteered in a single sector as a full-time equivalent employee. It is thus wholly inappropriate to price volunteers’ labour at the full-time market wage; for even if the sum of volunteer work could be levelled into full-time work, the unique capital every volunteer brings cannot be so trivially reduced.

The overhead costs of administration and capital must also apply to each hour of labour, and the additional costs of taxation (such as superannuation, workers’ compensation and payroll tax) should be allowed for.

Using median wage data for each age cohort; allowing an additional 20 per cent for superannuation, payroll and administration costs; and, discounting for volunteering that occurs outside Tasmania, it is found that the cost to the community of replacing volunteers’ labour in Tasmania would be $2.5 billion. Add to this the direct costs of $138.8 million that VIOs incur in the pursuit of their volunteering, and this figure blows out to $2.7 billion.

This amount is equal to 53.2 per cent of the Tasmanian state government’s entire budget for 2014 (Department of Treasury and Finance, 2014).

Salamon, Sokolowski, and Haddock (2011) make an interesting observation using the replacement cost of labour method: If compared to the adult population of all countries, the global volunteering workforce would be the second largest ‘country’ in the world, behind China and ahead of India. Appropriating that idea and applying it to the total compensation of Tasmanian employees by industry, on a labour cost replacement basis, volunteering is Tasmania’s largest industry.

Other Civic Benefits

There are a number of formal systems of care that are paid for by society through taxes and personal expenditure. These include all private and public, recurrent and capital expenditure on health, criminal and social justice. By pricing an intermediate input (the replacement cost of volunteering) instead of those outcomes, we effectively understate the true savings that flow from volunteering and which are enjoyed by the state.

Additionally, every time that Tasmania is internationally associated with a volunteering event, activity or individual, it ‘brands’ the State—albeit temporarily—in the wider public consciousness. Such links are known to influence related purchase behaviour (Balabanis & Diamantopoulos, 2011; Kang & Yang, 2010).

For regions or the nation as a whole, this means that people make tourism, export or even migration decisions that are founded on the strong and positive associations they have with that brand. As such a significant player in the State’s cultural economy, it is reasonable to suggest that volunteering has a prominent role to play in this associative dynamic.

Indeed, our survey of volunteer-involving organisations (VIOs) revealed that in the last 12 months approximately 4,222 tourists visited Tasmania for the purpose of volunteering. Their average stay of 13.9 nights was significantly higher than the average visitor stay of 8.9 nights (Tourism Tasmania, 2014). On this basis, volunteer tourism represents an under-realised potential for the State.

Philosophers from Aristotle to Dworkin (2006)have also argued that a robust democracy depends on the active participation of its citizens. The logic has been that for a government to be truly representative, as many constituents as possible must be connected and contributing to the social discourse. It should therefore be acknowledged that volunteering can act as a gateway for those marginalised to either contribute toward a political cause, draw strength from, or generate ideas that bring about political change (Caruso, 2005).

This report has not attempted to locate and assign an economic value to these surplus volunteering benefits; no doubt many more could also be identified. This is commended as a direction for future research.

Individual Benefits

To this point, our study has described and, where possible, quantified outputs that add value to our commercial and civic systems. In this section it is asked, how much is the intrinsic satisfaction or pleasure that the community derives from volunteering?

When consumers engage with volunteering through an act or purchase, they are assumed to derive some benefit from the decision. A rational economic framework imposes the assumption that decision-makers are acting to maximise utility in some fashion and do not intentionally make decisions that reduce this. Therefore, for each act of participation or consumption, there is assumed to be a gross benefit (or gross consumer surplus) attached to that act.

At the very least, the gross benefit is equal to their expenditure on the items concerned. The revealed preference framework can therefore be applied to identify the minimum benefits associated with volunteer engagement; in this case, the $271.8 million households spend on volunteering-motivated purchases. Yet how much would individuals be willing to pay above and beyond this amount for the full set of benefits that might accrue from their volunteering experience? And what of non-volunteers? Do they identify a level of satisfaction, even though they may not be directly participating? 

Contingent Valuation

It is argued that the places where transactions occur (markets) are a social good because the exchange will only occur when both buyer and seller perceive value in their end of the deal. For the vendor, this means making a profit that exceeds their costs of production. This profit is also known as the producers’ surplus, and its value is estimated in the Commercial Benefits section of this report. For the purchaser, though, value means achieving a ‘bargain’, in that they would have been willing to pay more than they actually did for the article to satisfy their need. The welfare of both parties is thus improved, and goods and services that do not meet this twin threshold are naturally selected out of the market.

Thus the net consumer surplus is the net benefit or additional utility an individual receives in excess of the cost associated with an activity or act of consumption. In many cases, consumer surplus is an important benefit in calculating the net costs or benefits of an activity, for it allows us to arrive at a use value of a product or service. The use value(or value-in-use) is what a person would be willing to pay for their purchase / consumption of a good or service, and includes the ultimate satisfaction (or utility) they derive from it. As such, it is the sum of the purchase (or market) price and consumer surplus.

It is known from the survey of volunteers that the market price for volunteering-related goods and services consumed in Tasmania by individuals (households) in 2014 was $271.8 million, the sum of the producer’s surplus and the cost of supply.

Survey respondents were then asked if they would be hypothetically willing to pay (WTP) to support volunteering and, if so, what the value this contribution might be over 12 months. WTP is thus a quantification of an individual’s satisfaction with (or consumer surplus attached to) an entity, in this case volunteering.

Overall, 55.1 per cent of respondents were WTP something above and beyond the current market price of volunteering to sustain or enlarge the activity. Interestingly, age appears to significantly mediate WTP—the younger a person is, the more likely they are to value volunteering in Tasmania in this way.

However, there was evidence to suggest some people exaggerated their preferences in reporting their WTP. Of the 700 survey respondents, 18 people (or 2.6 percent of our sample) reported a WTP much greater than $10,000, a significant deviation from the norm. Therefore to control for respondents possibly attempting to influence results, WTP was capped at $10,000. Although WTP should not be confused with an individual’s capacity to pay (as it is essentially a measure of gross satisfaction), this allowed for WTP to vary within cohorts while removing the influence of potentially misrepresented preferences.

This methodology resulted in a conservative estimate of average WTP for volunteers of $1,006.66, or approximately $19 per week. With a standard error of $107.28, there is a 95 per cent probability that the true average WTP lies in the interval $796.39 to $1,216.93. Among the 79.8 per cent of the population who volunteered in Tasmania in 2014, this allows for a gross consumer surplus of $333.5 million, or 122.7 per cent of their actual expenditure (not including shadow costs).

Beyond this, the 20.2 per cent of non-users (or non-volunteers) also perceive a benefit to volunteering. Even though they do not volunteer themselves, continuing the method described above estimates their gross WTP to be $46.1 million.

The value of volunteering to individuals in Tasmania, being the sum of market price and consumer surplus across users and non-users, is therefore estimated to be $651.4 million.

An interesting observation here is that non-volunteers place a value on the regular benefits of volunteering that is five times lower than the costs of participation (the current and opportunity costs to the individual of regular volunteering are estimated to be $54 per week; whereas non-volunteers WTP is $10.50).

This finding might indicate that the financial barriers to volunteering for this group are real and that on current terms volunteering is not worth the investment. This is significant when juxtaposed with Figure 6, which showed that the higher a person’s income is, the less volume of hours they are likely to volunteer.

On the other hand, it may suggest that they are either content to subsidise the regular volunteering of others (in return for the sum of community benefits enabled), and/or they are valuing their option to volunteer at a later date. Further research is required in this regard.

We can also reveal that as well as being significant in distinguishing our survey method from the ABS’, the eight hours per month threshold for volunteering participation we have used throughout this report is the most statistically significant predictor of an individual’s satisfaction with their volunteering (WTP). The data show that individuals who volunteer regularly at more than eight hours per month value volunteering much greater than those who only volunteer occasionally.

So What?

The particular benefits that individuals and the community receive from volunteering in Tasmania are not unique. Viewed in isolation, they may not even be that efficient. For example, people might equally improve their social capital by going to church; they could also transfer their social obligations to government in the form of increased taxes. Perhaps then users (and potentially non-users) are valuing the ability of volunteering to originally combine and distribute these discrete economic, social and cultural contributions to Tasmania’s welfare.

Well-controlled WTP studies suggest that the easier it is to replace a benefit, the less people are willing to pay to preserve it. In this case, there are a number of competing leisure alternatives to volunteering in Tasmania. Although a comparative WTP study with these options has not been performed here, the fact that the community of volunteers and non-volunteers are theoretically willing to defend the activity to the extent described is an original and significant finding.

A Cautionary Note

Expressions of willingness to pay essentially measure satisfaction, and should not be confused with a desire on the part of consumers to pay more. Indeed, willingness should not be conflated with an individual’scapacity to pay. In terms of value, increasing prices (or withdrawing subsidies) would result in a zero sum for current volunteers and their audience, as their consumers’ surplus would be converted into producers’ surplus for no net gain.

Furthermore, even though it is also known that volunteering supply is relatively inelastic, there is compelling evidence here to suggest that non-volunteers are highly price-sensitive. Therefore, non-users would be alienated by price rises that were not linked to new value, and this would reflect in their adjusted WTP. As it is assumed that a significant community benefit can be realised by converting non-volunteers into active participants, deliberately exploiting the presently high levels of the community’s WTP by either increasing prices or withdrawing subsidies is likely to be counterproductive.

Conclusion

The value of volunteering to Tasmania across the entire community is the sum of the benefits enabled. This study estimates these to be worth $4.9 billion in 2014.

The findings of this study largely speak for themselves. If you could absolutely guarantee a minimum annual return of over 400 per cent on every dollar invested commercially, then there would be a run on the banks tomorrow. Yet although this result may be cause for celebration amongst advocates for volunteering, the full potential of the industry is yet to be realised.

It is beyond the brief of this project to make recommendations as to how government investment in volunteering can be made more efficient. The results reported, however, reveal a number of conclusions that should be of particular interest to public policy.

On the participative side, just under 80 per cent of Tasmanians volunteer in their community in one form or another. This figure is much greater than previous estimates, suggesting that to this point volunteering has been under-quantified and potentially undervalued in the public discourse.

From the perspective of economic impact, this report challenges the conventional wisdom in demonstrating that volunteering labour is of far more significance to the welfare of the community than its mere replacement cost. Volunteering is an industry that influences economic activity across almost the entire spectrum of government and commercial interests—in fact, by analogous measures, it is Tasmania’s largest industry. To that end, there should be a concerted effort to more efficiently share the resources and knowledge embedded in volunteering throughout society.

The cost-benefit analysis in this study has also shown that because the external benefits of volunteering exceed the social costs, the outcome is not inefficient. The effect of VIO and government subsidies is to reduce the cost to participants of engaging in volunteering. Our marginal analysis nonetheless hypothesises that enlarging this investment will yield an exponential return, thereby moving the volunteering economy closer to a Pareto efficient outcome.

Ultimately, this study has examined whether those who donate their time and money to volunteering are supporting the common good. It is hoped that this report can educate readers to the economically real and significant value of volunteering to Tasmania. All too often, advocates of volunteering are accused of being evangelists, appealing to the intuition of their audience in the absence of economic reason.

Yet even if some of the findings herein are to be contested, it is argued that this report is a major step towards filling a gap in the debate for (or against) volunteering. Although there are a number of limitations to the study that would benefit from future research, the potential now exists for decision-makers in both industry and government to leverage this framework for continual improvement in the marketing and delivery of their services.

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References

Balabanis, G., & Diamantopoulos, A. (2011). Gains and losses from the misperception of brand origin: The role of brand strength and country-of-origin image. Journal of International Marketing, 19(2), 95-116.

Caruso, H. Y. C. (2005). Art as a political act: Expression of cultural identity, self-identity, and gender by Suk Nam Yun and Yong Soon Min. The Journal of Aesthetic Education, 39(3), 71-87.

Department of Treasury and Finance. (2005). Project Evaluation Guidelines.

Department of Treasury and Finance. (2014). Government Services Budget Paper Number 2 (Vol. 1).

Dworkin, R. (2006). Is Democracy Possible Here?: Principles for a New Political Debate.

Ironmonger, D. (2006). The Economic Value of Volunteering in Queensland. In Department of Communities (Ed.): Queensland Government.

Ironmonger, D. (2008). The Economic Value of Volunteering in Queensland - Updated Report. In Department of Communities (Ed.): Queensland Government.

Ironmonger, D. (2009). The Economic Value of Volunteering in Western Australia. In Department for Communities (Ed.): Government of Western Australia.

Ironmonger, D. (2011). The Economic Value of Volunteering in South Australia. In Office of Volunteers (Ed.): Government of South Australia.

Ironmonger, D. (2012). The Economic Value of Volunteering in Victoria. In The Department of Planning and Community Development (Ed.): Victorian Government.

Ironmonger, D., & Soupourmas, F. (2002). Giving Time: The Economic and Social Value of Volunteering in Victoria. In Households Research Unit (Ed.): University of Melbourne.

Kang, M., & Yang, S. U. (2010). Comparing effects of country reputation and the overall corporate reputations of a country on international consumers’ product attitudes and purchase intentions. Corporate Reputation Review, 13(1), 52-62.

Salamon, L. M., Sokolowski, S. W., & Haddock, M. a. (2011). Measuring the Economic Value of Volunteer Work Globally: Concepts, Estimates, and a Roadmap To the Future. Annals of Public & Cooperative Economics, 82, 217-252.

Tourism Tasmania. (2014). Tasmanian Visitor Survey. http://www.tourismtasmania.com.au/research/tvs.

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