The measurement of employee welfare and its effects on the output level

Welfare, in general, refers to both economic and social prosperity of individuals. From an economic point of view, individuals are very important actors of the labour market in the production process. This chapter focuses on employees and attempts to offer a valuable insight into the concept of welfare, its measurement, and its potential impact on the national product. Measuring welfare is not straightforward due to its multidimensional concept. The purpose of this chapter is to provide a way of measurement of employee welfare through an index that combines selected welfare components of employees. In the process of building that index, principal component analysis (PCA) was applied. Preserving variability and reducing dimensionality, this method is a very functional tool to represent multidimensional variables such as welfare in this case. Eurostat data for the period of 2008-2018 were utilized to explain the impact of employee welfare on the GDP per capita for 32 European countries. Findings revealed that employee welfare is a significant indicator of the national product.