Alternative measures of well-being

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
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

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
Papers organisation

• Different national accounts measures of economic
  resources
• 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
GDP and NNI per capita in current prices and
PPPs, 2003

• Levels of NNI are lower than GDP per capita
• Rankings based on NNI are similar to GDP

9
Growth rates of GDP and NNI are similar in most
countries
GDP and NNI per capita growth, average annual
growth, 1994-2003

• 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
Consumption, actual consumption and GDP per
capita, 2003

• Levels of the three measures lower than GDP per
  capita
• Strong correlation between levels of household
  income/consumption and GDP per capita

12
Starker differences when looking at growth rates
Real annual growth in households disposable
income, actual consumption expenditure and real
GDP per capita, 1994-2003
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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)

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2. Other non-economic factors

• Integration of additional items into enlarged
  (money based) measures of well-being
• Social indicators (Non-monetary)
• Measures of happiness and life-satisfaction

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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

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Leisure time of workers smaller gaps relative
to the US after valuing leisure-time in some
Continental European countriesLevels, relative
to the US, in leisure-adjusted GDP per capita,
2001
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
18
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
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2.2. Non-monetary social indicators

• Measures of selected outcomes (rather than
  inputs) in four different fields
• Self-sufficiency
• Equity
• Health
• Social cohesion

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Correlations between social indicators and GDP
per capita significant in levels but not in
changes
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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
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2.3. Subjective measures of life-satisfaction
90 of respondents satisfied with their life in ?
of countries
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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

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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)