1
Alternative measures of well-being
Joint work by ECO/ELSA/STD
2
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?
3
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
Background
4
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
5
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
6
Different NA measures of economic resources
Two parts– Measures for the economy as a whole– Measures for the household sector
7
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
8
Levels of NNI are lower than GDP per capita Rankings based on NNI are similar to GDP
0
10000
20000
30000
40000
50000
60000
GDP per capita NNI per capita
GDP and NNI per capita in current prices and PPPs, 2003
9
Growth rates of GDP and NNI are similar in most countries
GDP and NNI per capita growth, average annual growth, 1994-2003
SVK
FIN
GRC
GBRAUS
SWEISL
CANESP
USAAUT
DNK
NLDBELFRA
ITA
DEU
MEX
CHE
0.0
1.0
2.0
3.0
4.0
5.0
0.0 1.0 2.0 3.0 4.0 5.0
GDP per capita, per cent
NN
I per
cap
ita, p
er c
ent
GDP and NNI per capita growth, average annual growth, 1994-2003
10
Measures for the household sector
Three NA measures of consumption possibilities of individuals:– Household disposable income– Household final consumption expenditure– Household “actual” consumption expenditure
11
Levels of the three measures lower than GDP per capita Strong correlation between levels of household income/consumption and GDP per capita
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
55000
-10
1 2 3 4 5 6 7Final consumption Government and NPI services Disposable income GDP
Consumption, actual consumption and GDP per capita, 2003
12
• Starker differences when looking at growth rates
GDP and final consumption expenditure per capita
AUS
AUT
BEL
CAN
CZE
DNK
FIN
FRA
DEU
GRC
HUN
ISL
IRL
ITA
JPN
KOR
LUX
MEX
NLD
NZL
NOR
POL
PRT
SVK
ESPSWE
CHE
TUR
GBR
USA
0
1
2
3
4
5
6
7
0 1 2 3 4 5 6 7GDP per capita
Priv
ate
cons
umpt
ion
per
capi
ta
GDP and household disposable income per capita
USAGBR
TUR
CHE
SWE
SVKPRT
POL
NOR
NZLNLD
MEX
KOR
JPNITA
HUN
GRC
DEU
FRAFIN
DNK
CZE
CAN
BEL
AUT
AUS
0
1
2
3
4
5
6
7
0 1 2 3 4 5 6 7GDP per capita
Hou
seho
ld d
ispo
sabl
e in
com
e pe
r ca
pita
Real annual growth in household’s disposable income, actual consumption expenditure and real GDP per capita, 1994-2003
13
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)
14
2. Other non-economic factors
1. Integration of additional items into “enlarged” (money based) measures of well-being
2. Social indicators (Non-monetary)
3. Measures of happiness and life-satisfaction
15
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
16
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
0.0
0.4
0.8
1.2
1.6
Mex
ico
Slova
k Rep
.
Hunga
ry
Korea
Gre
ece
Portu
gal
New Z
eala
ndSpa
inIta
ly
Ger
man
y
Finlan
d
Japa
n
Unite
d Kin
gdom
Franc
e
Sweden
Austra
lia
Belgiu
m
Canad
a
Nethe
rland
s
Austri
a
Denm
ark
Irelan
d
Norway
Luxe
mbo
urg
Leisure valued at hourly compensation Leisure valued at half of hourly compensationLeisure valued at GDP per hour w orked GDP per capita
17
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
0
10 000
20 000
30 000
40 000Coeff. of aversion to inequality of 0Ceoff. of aversion to inequality of 1Coeff. of aversion to inequality of 10GDP per capita
18
• Changes in living arrangements: some significant reductions in growth of household disposable income in
some countriesReal annual change of per capita household disposable income and adjustments for changes in
household size, selected OECD countries
1985-2002
USA
GBR
SWENLD
JPN
ITA
DEU
FRA
FINDNK
CAN
AUT
AUS
-1
0
1
2
3
4
-1 0 1 2 3 4
Mean non-equivalised income
Mea
n eq
uiva
lised
inco
me
1995-2002
USA
GBR
TURSWE
ESP
PRT
POL
NOR
NZL NLD
MEX
JPN
ITA
GRC
DEU
FRA
FIN
DNK
CZE
CAN
AUT
AUS
-1
0
1
2
3
4
-1 0 1 2 3 4
Mean non-equivalised income
Mea
n eq
uiva
lised
inco
me
19
2.2. Non-monetary social indicators
Measures of selected “outcomes” (rather than “inputs”) in four different fields:– Self-sufficiency– Equity– Health – Social cohesion
20
Correlations between social indicators and GDP per capita: significant in levels but not in changes
Social cohesion
Changes
LevelsSelf-sufficiency Equity Health
-20%
0%
20%
40%
60%
80%
-40%
-20%
0%
20%
40%
60%
80%
Total
emplo
ymen
t rat
es (2
003)
People
in jo
bless
hou
seho
lds* (
2000
)
Avera
ge ye
ars o
f sch
oolin
g (2
002)
Mea
n stu
dent
pre
form
ance
(200
0)
Inco
me
Ineq
uality
* (20
00)
Relativ
e po
verty
rate
* (20
00)
Child
pove
rty* (
2000
)
Gende
r wag
e ga
p* (1
999)
Health
y life
exp
ecta
ncy a
t birt
h (2
002)
Life
expe
ctanc
y at b
irth,
tota
l (20
02)
Infa
nt m
orta
lity* (
2002
)
Poten
tial n
umbe
r of y
ears
lost*
(200
2)
Volunt
eerin
g (2
000)
Victim
isatio
n ra
te* (
2000
)
Convic
ted
adult
s* (2
000)
Suicide
rate
* (20
02)
21
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
22
2.3. Subjective measures of life-satisfaction: 90% of respondents satisfied with their life in ⅔ of countries
5
6
7
8
9
10
Scor
es
60
70
80
90
100
Perc
enta
ges
Mean life-satisfaction score (left-axis)Mean Happiness score (left-axis)Share of very/fairly happy people (right-axis)
23
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
24
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 non-monetary indicators)