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Nov 3, 2022 | by Simona Tenaglia

The economics of wellbeing: workplace mental health and productivity

A new study uses nationally-representative longitudinal data from Denmark to explore how different levels of mental wellbeing influence productivity costs and to estimate associated productivity loss on a national level.

We consider the study’s methodology and key findings, and what the insights mean in the context of workplace wellbeing in the UK.

The economics of sickness absence

Everyone’s work has economic value to society. When an individual takes time out of the workforce due to illness or injury, they are unable to perform their work tasks and the employer is not able to benefit from the employee’s time and skill. Productivity loss is the estimated value of this lost work time.

In the UK, the total economic cost of sickness absence, lost productivity through worklessness, informal caregiving, and health-related productivity losses, are estimated to be over £100bn annually.

The International Public Policy Observatory (IPPO) estimates the cost of poor staff mental health and wellbeing to the NHS might amount to £12.1 billion per year. Tackling poor mental health and wellbeing, and reducing the number of people voluntarily leaving, could save up to £1 billion.

“Even before the cost-of-living crisis, UK employers already had to contend with costs of up to £56 billion per annum due to poor staff mental health, while the number of people of working age who have left the labour force and are considered to be economically inactive has now risen to 9 million people.” – David McDaid, London School of Economics and Political Science

Bridging an evidence gap

While a number of international studies have investigated the costs of productivity loss associated with poor mental health, including depression and stress, only a few have focused on the impact high mental wellbeing has on a national economy. 

Of those, the majority have used evaluative wellbeing, such as life satisfaction, or hedonic wellbeing, which is a focus on happiness or feeling good and avoiding unpleasant experiences. 

The review by Santini et al. (2022) grows the evidence base by using the seven-item Shorter Warwick-Edinburgh Mental Wellbeing Scale (SWEMWBS), which measures both the feeling and functioning aspects of mental wellbeing. 

SWEMWBS is a validated version of the full 14-item Warwick-Edinburgh Mental Wellbeing Scale (WEMWBS), widely used for monitoring, evaluating projects and programmes and investigating the determinants of mental wellbeing.

In an earlier review, the researchers used Danish population-based register data to show that a continuous measure for mental wellbeing in 2016 was inversely associated with healthcare costs in 2017 (Santini et al., 2021a).

Published in Mental Health and Prevention, the latest study extends the authors’ previous work by estimating the potential reductions in productivity losses or costs associated with higher levels of mental wellbeing.

Key findings

  1. Good mental health is associated with six to nine fewer annual sick days. Danish people with high levels of mental wellbeing, measured in 2019, were significantly less absent from work in 2020 due to sickness, compared to those with poor or moderate mental health. 
  2. Good mental health translates to a reduction of USD $0.9-1.3bn per year in productivity losses to the Danish economy. Each point increase in mental wellbeing in 2019 was associated with $-105/$-83 in lower productivity loss per person in 2020.

Overall, the results suggest that higher mental health equates to lower productivity loss. 

Higher levels of wellbeing are associated with better physical and mental health and health behaviours, which may help reduce sickness absence from the workplace. High wellbeing has also been shown to be beneficial in terms of productivity, resilience and motivation to remain active in the labour market. 

The researches suggest that substantial reductions in productivity loss could potentially be achieved by promoting higher levels of mental wellbeing in the population workforce.

Data and methodology

The study uses a Danish nationally representative panel study of 1,959 employed adults (aged 16–64 years old) conducted in 2019 and 2020. The survey data was linked at an individual level to registers at Statistics Denmark, which allowed for the merging of data on the amount of sickness absence from the workplace and health status, among other variables.

Linear regression models were used to determine if measures of mental wellbeing (SWEMWBS) in 2019 predicted sickness absence in 2020. The model controlled for gender, age, marital status, education, country of origin, activity limitations, pain, chronic conditions, and any past or current mental disorder as explanatory variables.

Productivity loss or costs were estimated using both the human capital approach (HCA) and friction approach (FCA). The HCA is the most traditional approach for estimating lost productivity, where time absent from work caused by illness is valued at market wage. It assumes that work will be lost for the entire period that a worker is absent due to illness.

In contrast, the FCA proposes  that society only incurs losses during the period it takes to replace a worker (the ‘friction period’). It assumes that there is a pool of internal workers or external unemployed workers who can take over the role, or it is possible to use technology to substitute for the worker. The estimated costs to society are therefore lower according to FCA.

Mutual gains for employers and employees

According to a recent HR News survey, a quarter of respondents have already accelerated their focus on wellbeing due to concerns for employees in light of the cost of living crisis and pressure on NHS services. 

In contrast, over a third of companies report being hindered in their investment into employee wellbeing by perceived business risks of a potential recession and concerns around inflation. 

Evidence shows that investing in staff wellbeing  could improve performance, reduce staff turnover, and boost productivity and creativity. So reassessing the value of employee health benefits is of financial interest to employers and the wider economy. 

It is possible for an organisation to support both staff wellbeing and organisational performance at the same time. Good job design, strong leadership and effective management are key factors in ensuring the best outcomes for both an organisation and its employees.

Making a work environment more attractive in terms of wellbeing will likely help organisations be flexible and resilient to current recruitment and retention challenges.

For example, where employers benefit from having a capable, flexible and committed workforce, their employees can cherish an inclusive culture, a sense of community and a positive work environment in which they can personally and professionally grow.

An organisation perceived to be authentic in its concern for employees’ health and wellbeing is likely to benefit from positive and trusting relationships with employees. Evidence shows that corporate messaging about care and concern for employees’ wellbeing needs to be supported by tangible, continuous and consistent efforts.

What do we need to know more about?

Our recent case study looking at working conditions, mental health and productivity at a large retail company, found that while mental health continues to be the most important factor related to productivity, the work environment, relationships and culture played a key direct role on individual productivity and performance. 

The current review provides further evidence of the importance of ensuring that the workplace environment helps promote better wellbeing. 

More causal evidence is needed about the links between workplace wellbeing and productivity, contextualised in different countries. We also need more information on specific job characteristics and their influence on wellbeing. 

More evaluations are needed to understand specifically which actions work to improve both wellbeing and performance at scale in a variety of workplace settings in the UK.

These findings relate to pre-Covid measurements of mental wellbeing. Extending the review to capture data during and after the pandemic will help paint a fuller picture of the impact it has had on working life and culture.


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