Transcript Alternative measures of well-being

Alternative measures of well-being
Joint work by
ECO/ELSA/STD
1
Motivation

Economic perspective:
– Is GDP per capita an adequate measure of well-being?

Social perspective:
– What light social indicators bring to an assessment of living
conditions?
2
Background


In the 1970s: discussions on environmental and
social limits to growth
In recent years: concerns on broader measures of
well-being within discussions on sustainable
development
3
Economic theory and well-being




Focus on the household sector
Broad range of items enters individuals’ utility
function
Individuals’ versus societal well-being: social welfare
functions build on alternative philosophies of social
justice
Problems in real income comparisons: not a good
measure of consumption possibilities; externalities
and other distortions; situational comparisons
4
Paper’s organisation
1.
Different national accounts measures of economic
resources
2.
Other factors: objective measures of various factors
that influence well-being and subjective measures
of happiness and life-satisfaction
5
Different NA measures of economic resources

Two parts
– Measures for the economy as a whole
– Measures for the household sector
6
Economy-wide measures

Adjustments to GDP:
– Relations with the rest of the world
• Net income transfers from abroad
• Terms of trade effects (for fixed price measurements)
GNI
– Effect of consumption of fixed capital
NNI
7
Levels of NNI are lower than GDP per capita
 Rankings based on NNI are similar to GDP

60000
GDP and NNI per capita in current prices and PPPs, 2003
50000
40000
30000
20000
10000
FI
N
JP
N
DE
U
IT
A
ES
P
NZ
L
G
RC
KO
R
PR
T
CZ
E
HU
N
SV
K
PO
L
M
EX
TU
R
LU
X
US
A
NO
R
IR
E
CH
E
AU
T
DN
K
CA
N
NL
D
AU
S
G
BR
IS
L
BE
L
SW
E
FR
A
0
GDP per capita
NNI per capita
8
Growth rates of GDP and NNI are similar in most countries
GDP and NNI per capita growth, average annual growth, 1994-2003
5.0
SVK
FIN
NNI per capita, per cent
4.0
GBR
AUS
3.0
ISL growth, 1994-2003
GDP and NNI per capita growth, average annual
SWE
GRC
DNK
2.0
ITA
MEX
1.0
CHE
FRA
USA
AUT
NLD
BEL
CAN
ESP
DEU
0.0
0.0
1.0
2.0
3.0
4.0
5.0
GDP per capita, per cent
9
Measures for the household sector

Three NA measures of consumption
possibilities of individuals:
– Household disposable income
– Household final consumption expenditure
– Household “actual” consumption expenditure
10

Levels of the three measures lower than GDP per capita
 Strong correlation between levels of household
income/consumption and GDP per capita
0
-1
1
Final
consumption2
3
Government
and NPI4 services
5
6
Disposable income
7
GDP
55000
Consumption, actual consumption and GDP per capita, 2003
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
LUX USA NOR
IRE CHE AUT DNK NLD CAN
AUS GBR
ISL
BEL SWE
FRA
JPN
FIN DEU
ITA
ESP
NZL GRC KOR
PRT
CZE HUN
SVK
POL MEX
11
TUR
• Starker
differences when looking at growth rates
Real annual growth in household’s disposable income, actual
consumption expenditure and real GDP per capita, 1994-2003
GDP and final consumption expenditure per capita
7
7
6
6
Private consumption per capita
Household disposable income per capita
GDP and household disposable income per capita
5
HUN
4
3
NOR
PRT
USA
FRA
2
NLD
AUT
DEU
DNK
CHE
1
GBR
CZE
FIN
AUS
NZL
SWE
CAN
GRC
POL
SVK
KOR
5
POL
IRL
4
SVK
KOR
2
1
CHE
BEL
MEX
TUR
0
0
ITA
JPN
1
CZE
GBR
AUS FIN
ISL
NZL
CAN USA
LUX
ESP
GRC
FRA
NLD
SWE
ITA PRT
AUT
DEU
DNK
MEX
JPN
BEL
NOR
3
TUR
0
2
3
4
GDP per capita
5
6
7
HUN
0
1
2
3
4
GDP per capita
5
6
12
7
Summing up


Economy-wide measures in NA are closely related to each
other
There are larger differences between household and economy
wide-measures (GDP per capita)
13
2. Other non-economic factors
1.
2.
3.
Integration of additional items into “enlarged”
(money based) measures of well-being
Social indicators (Non-monetary)
Measures of happiness and life-satisfaction
14
2.1. Integration of additional items into monetary
measures of well-being

Which additional factors?
– Leisure-time of workers (direct influence on GDP)
– Living arrangements (household economies of scale)
– Income distribution

Limits
– Illustrative calculations only (subject to arbitrary assumptions)
– No attempt to see whether the effects of these different factors
cumulate or cancel out when combined

General conclusion
– Some significant differences in “levels” of countries’ performance
relative to GDP per capita
– Differences in “changes” limited to “extreme” assumptions on
valuation
15
Leisure time of workers:
smaller gaps relative to the US after valuing leisure-time in some
Continental European countries
Levels, relative to the US, in leisure-adjusted GDP per capita, 2001
1.6
1.2
0.8
0.4
M
Sl ex
ov ic o
ak
R
H ep.
un
ga
ry
Ko
re
G a
re
e
Po ce
N
ew rtu
Ze ga l
al
an
d
Sp
ai
n
I
G tal y
er
m
an
Fi y
nl
an
U
d
ni
te J ap
d
Ki an
ng
do
Fr m
an
Sw ce
ed
Au en
st
ra
l
Be i a
lg
iu
C m
a
na
N
et
he da
rl a
nd
Au s
st
D ria
en
m
ar
Ire k
la
N nd
Lu orw
x e ay
m
bo
ur
g
0.0
Leisure valued at hourly compensation
Leisure valued at GDP per hour w orked
Leisure valued at half of hourly compensation
GDP per capita
16
Impact of inequality: significant on levels of household
disposable income, smaller in terms of rankings
Levels of “equally-distributed” household disposable income for different values of the
coefficient of aversion to inequality, 2002
40 000
30 000
Coeff. of aversion to inequality of 0
Ceoff. of aversion to inequality of 1
Coeff. of aversion to inequality of 10
GDP per capita
20 000
10 000
Tu
rk
e
M y
ex
ic
Po o
l
Cz Hu and
ec
ng
h
Re ary
pu
b
Po li c
rtu
g
Ne Gre a l
e
w
Ze ce
al
an
d
Sp
ai
n
I
G tal y
er
m
an
y
Ja
pa
Fi n
nl
a
Sw nd
ed
e
Fr n
an
c
A
Un
us e
i te
t
d rali a
Ki
ng
d
Ca om
Ne n
th ada
er
la
n
De ds
nm
a
Au rk
Sw
s
i tz tria
Un erl
i te an
d
d
St
a
No te s
rw
ay
0
17
• Changes in living arrangements: some significant
reductions in growth of household disposable income in
some countries
Real annual change of per capita household disposable income and adjustments for changes in
household size, selected OECD countries
1985-2002
4
1995-2002
4
POL
3
Mean equivalised income
Mean equivalised income
NOR
GBR
DEU
2
USA
SWE
AUTFRA
NLD
1
FIN
CAN
ITA
JPN
AUS
0
-1
DNK
0
1
3
GBR MEX
FRA SWE
TUR
USA
FIN
NZL NLD
PRT
AUT
CZE
ESP
AUS
CAN
DEU
2
1
DNK
GRC
0
2
3
4
-1
0
ITA
1
2
3
JPN
-1
-1
Mean non-equivalised income
Mean non-equivalised income
18
4
2.2. Non-monetary social indicators

Measures of selected “outcomes” (rather than
“inputs”) in four different fields:
–
–
–
–
Self-sufficiency
Equity
Health
Social cohesion
19
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Correlations between social indicators and GDP per capita:
significant in levels but not in changes
Equity
Levels
Health
Social cohesion
80%
60%
40%
20%
0%
-20%
Changes
80%
60%
40%
20%
0%
-20%
-40%
20
Aggregation: some significant differences in economic
and social performances for some countries
Median value and confidence interval of a composite index based on selected social
indicators in OECD countries and GDP per capita
1.0
Average random composite index (RCI)
(based on 10 000 randomly assigned weights for each indicator)
0.9
0.8
0.7
0.6
0.5
90% confidence
interval for RCI
0.4
RCI, median value
0.3
0.2
GDP per capita,
normalised score
0.1
en
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21
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M
Sw e d
i tz x ic
er o
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Ire d
De lan
nm d
ar
k
Scores
10
9
Mean life-satisfaction score (left-axis)
Mean Happiness score (left-axis)
Share of very/fairly happy people (right-axis)
8
80
7
6
70
5
60
22
Percentages
2.3. Subjective measures of life-satisfaction: 90% of
respondents satisfied with their life in ⅔ of countries
100
90
2.3. Review of selected results from existing literature
– Country-based evidence
• inconclusive
– Individual-based evidence
• Own-income matters, but social comparisons and adaptation reduce its
impact on well-being
• A range of factors influence well-being beyond their financial effect
23
Main conclusion


No single best contender: measures of economic
resources remain critical but there is scope for
improvement
An assessment of well-being needs to rely on
complementary perspectives (monetary and nonmonetary indicators)
24