The Change-in-income technique

The concept

Income can be lost due to loss of work from ill health, premature illness or death. Each of these problems can be caused by environmental effects such as pollution. Income can be gained due to improvements in health, postponed illness and fewer deaths. If the changes in health are due to changes in the effect, the loss in health is an environmental cost and the gain is an environmental benefit. When the relationships between the environmental effect, health and income can be established, the effect can be valued as a change in income.

When to use it

The change-in-income method focuses on changes in labour inputs and on wages and income. The major applications have been to value changes in health-hence the alternate name is the human-capital approach. Nevertheless, the method has applications for many other areas.

• Do pollution control regulations increase incomes?
• Do the benefits of pollution control regulations exceed the costs?
• Do the benefits of more stringent regulations exceed the costs?

To resolve the latter question, the monetary values would need to be estimated for the benefits of improvements in health, prevention of corrosion of buildings and materials as well as the costs of damage to health and the corrosion of buildings and materials.

The technique has not yet been widely applied in Australia. This method has been used to estimate the benefits to health from sulphur oxide control in Europe (OECD 1989a, 1989b). The effect on the sulphur oxide concentration of several strategies for pollution management was predicted and a linear relationship was assumed between reductions of sulphur oxide and increase in the number of working days. The increase in wages due to increased pollution control was calculated for each country from the predicted increase in working days. The benefits of pollution control were identified as the increase in wages.

The technique can be extended to use changes in expenditure on inputs to measure gains as cost savings and losses as cost increases. For example, the cost of corrosion of buildings due to pollution can be estimated from increase in labour costs to clean the buildings.

Strengths and weaknesses

The principal weakness of this technique is that the link between pollution and health (the dose-response relationship) and between health and income must be identified for each application.

Despite this drawback the technique:

• is straightforward to apply
• rests on established procedures and actual data
• values actual damage.

For these reasons, it has been frequently applied overseas to value health benefits from pollution control

©İsmail Güneş
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