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Beyond GDP Measuring social progress in Europe

Beyond GDP Measuring social progress in Europe. Koen Decancq – Erik Schokkaert Frankfurt June 2013. Introduction. Recent interest in going “ beyond GDP” This paper: how can ( should ) we measure social progress ? Answer on three levels :

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Beyond GDP Measuring social progress in Europe

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  1. Beyond GDPMeasuringsocialprogress in Europe Koen Decancq – Erik Schokkaert Frankfurt June 2013

  2. Introduction • Recent interest in going “beyond GDP” • This paper: howcan (should) we measuresocialprogress? • Answeronthreelevels: • Principlesfor a measure of socialprogress • A specificproposal: equivalent income. • Illustration: well-being and socialprogress in Europebetween 2008 and 2010.

  3. Outline • Principlesfor a measure of socialprogress. • A specificproposal: equivalent income. • Illustration: well-being and socialprogress in Europebetween 2008 and 2010.

  4. Principle 1: focus onindividualwell-being The ultimatecriterion to evaluatesocialprogress is the well-being of individualsmaking up a society. • Quidfuturegenerations? • Sustainability as restriction to beimposedon present generations.

  5. Principle 2: focus onoutcomes Information must becollectedon the different dimensions of lifethat are important for the well-being of individualcitizens. • Well-being is notfullydeterminedbyincomeormaterialconsumption. • Otherdimensions of life are essential (e.g. health, quality of socialinteractions and of the natural environment, safety, … ). • Development of lists of specificpolicy indicators is a different issue. We focus on “outputs” ratherthanon “inputs”.

  6. Principle 3: accounting forcumulativedeprivation

  7. Principle 3: accounting forcumulativedeprivation Accounting forcumulativedeprivationrequiresthatonefirstconstructsan index of well-being at the individual level and thenaggregates these well-being indices acrossindividuals. • Comparewith the HDI … • … and MPI

  8. Principle 4: Respect forindividualideasabout a goodlife The weightingschemeapplied to construct the measure of individualwell-beingshould respect the individualideasaboutwhat is a goodlife. • Thisdiscards the use of objective indicators, such as the HumanDevelopment Index, MPI, …

  9. Principle 5: avoidance of physical-conditionneglect • Thenwhynotuse “happiness”? • Becauseit does not respect individualideasabout the goodlife! • “A personwho is ill-fed, undernourished, unsheltered and illcanstillbe high up in the scale of happinessordesire-fulfillmentifheorshe has learned to have ‘realistic’ desires and to takepleasure in smallmercies” (Sen, 1985). • Muchevidenceonadaptation in the empiricalliterature. Happinessor (subjectivelifesatisfaction) maybeone of the important dimensions of life, butitshouldnotbeseen as anencompassingmeasure of individualwell-being.

  10. Principle 6: inequalityaversion Justicerequires accounting forinequality in individualwell-being.

  11. Outline • Principlesfor a measure of socialprogress. • A specificproposal: equivalent income. • Illustration: well-being and socialprogress in Europebetween 2008 and 2010.

  12. A specificproposal: Equivalent incomes • Fixreferencevaluesfor all the non-incomedimensions. • Equivalent income = the hypotheticalincomethat, ifcombinedwith the referencevalueon all non-incomedimensions, would place the individual in a situationthatshefindsequallygood as her actualsituation.

  13. An example: income and health

  14. An example: income and health

  15. An example: income and health

  16. An example: income and health

  17. An example: income and health

  18. Pros (and cons) of equivalent incomes • Equivalent income = actualincome minus the welfare loss incurredon the non-incomedimensions (measured as willingness-to-pay). • Satisfies all ourbasicprinciples. • Measurable in money terms, canbeintroduced in anysocial welfare, inequalityorpovertymeasure.

  19. (Pros and) cons of equivalent incomes • LessintuitivethanhappinessorHDI – but these approaches do notsatisfyourbasicprinciples. • Choice of referencevalues: An ethicalquestion (notpsychological!) • More information is neededabout “preferences” (or WTP) • Statedpreferences: Contingent valuationsurveys (environment, health). • Revealedpreference: estimatefromobservedchoices and behaviour. • Deriveinformationaboutwillingness-to-payfromlifesatisfactionquestions.

  20. Outline • Principlesfor a measure of socialprogress. • A specificproposal: equivalent income. • Illustration: well-being and socialprogress in Europebetween 2008 and 2010.

  21. SocialProgress in Europe: An illustration • EuropeanSocialSurvey, 2008 and 2010. (SILC does notcontain a questiononlifesatisfaction). • 18 countries: 15 EU-members, Switzerland, Norway, the RussianFederation. About 52,000 individualobservations. • Dimensions:

  22. Estimatingpreferencedifferences • Assumption: preferences do notdifferbetween different countries. • Different groups have different preferences:

  23. Income, equivalent income, happiness (2010)

  24. Yearlygrowthrates (2008-2010)

  25. Conclusion • We stronglybelieve in the basic principles. Debateshouldbeabouttheirethical foundation. • The equivalent income is aninteresting concept, but theremaybeother approaches. • Ourempiricalillustration is onlymeant to beanillustration, butinterestingfindings Data need: introducequestionson “willingness-topay” orsatisfactionwithlifeon a regular basis in SILC.

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