beyond gdp: measuring social progress in europe
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Beyond GDP: Measuring social progress in Europe. Koen Decancq – Erik Schokkaert Stirling June 2014. Introduction. “Beyond GDP” Quest for a measure of social progress Discussion on three levels: Principles for a measure of social progress - PowerPoint PPT PresentationTRANSCRIPT
Beyond GDP:Measuring social progress in Europe
Koen Decancq – Erik Schokkaert
Stirling June 2014
Introduction
• “Beyond GDP” • Quest for a measure of social progress• Discussion on three levels:
1. Principles for a measure of social progress
2. A specific proposal: equivalent income.
3. Illustration: well-being and social progress in Europe between 2008 and 2010.
Introduction
• “Beyond GDP” • Quest for a measure of social progress• Discussion on three levels:
1. Principles for a measure of social progress
2. A specific proposal: equivalent income.
3. Illustration: well-being and social progress in Europe between 2008 and 2010.
Principle 1: Focus on individual well-being
The ultimate criterion to evaluate social progress is the well-being of individuals making up the society.
Principle 2: Focus on outcomes
The well-being of individuals depends on the outcomes in the different dimensions of life.
• Well-being is not fully determined by income. • Other dimensions of life are essential (e.g., health,
quality of social interactions and of the natural environment, safety, … ).
Principle 3: Account for cumulative deprivation
income health “well-being”
individual 1 100 10 55
individual 2 10 100 55
average 55 55
ratio 10/1 10/1 1/1
income health “well-being”
individual 1 100 100 100
individual 2 10 10 10
average 55 55
ratio 10/1 10/1 10/1
Principle 3: Account for cumulative deprivation
income health “well-being”
individual 1 100 10 55
individual 2 10 100 55
average 55 55
ratio 10/1 10/1 1/1
income health “well-being”
individual 1 100 100 100
individual 2 10 10 10
average 55 55
ratio 10/1 10/1 10/1
Principle 3: Account for cumulative deprivation
Accounting for cumulative deprivation requires to construct first an index of well-being at the individual level and then aggregate these well-being indices across individuals.
• Compare with dashboards of development• … and the Human Development Index (HDI)
Principle 4: Respect for individual ideas about a good life
The measure of individual well-being should respect the individual ideas about what is a good life.
• This discards the use of objective indicators, such as the Human Development Index (HDI)
• And also the Multidimensional Poverty Index, …
Life satisfaction measures do not respect preferences
• Then why not use “happiness”?
health
income
Bob
Ann
Life satisfaction measures do not respect preferences
• Then why not use “happiness”?
health
income
Bob
Ann
• If Ann and Bob have the same preferences, respect for preferences means that Ann should be seen as better off than Bob.
• Now look at what could happen, when we ask to Ann and Bob how satisfied they would be in both situations
• Bob is happier than Ann
5 for Ann
3 for Ann
9 for Bob
7 for Bob
Principle 5: inequality aversion
Justice requires accounting for inequality in individual well-being.
• Social welfare = M (1 - I )
Average Inequality
Principle 5: inequality aversion
Outline
1. Principles for a measure of social progress.
2. A specific proposal: equivalent income.
3. Illustration: well-being and social progress in Europe between 2008 and 2010.
A specific proposal: Equivalent income
• Fix reference values for all the non-income dimensions.
• Equivalent income = the hypothetical income that, if combined with the reference value on all non-income dimensions, would place the individual in a situation that she finds equally good as her actual situation.
An example: income and health
health
income
Benny
Ann
An example: income and health
health
income
Benny
Ann
Perfect health
An example: income and health
health
income
Benny
Ann
A’Perfect health
An example: income and health
health
income
Benny
Ann
A’Equivalent income A
Perfect health
An example: income and health
health
income
Benny
Ann
B’
A’
Equivalent income B
Equivalent income A
Perfect health
Pros and cons of equivalent incomes
• Pros: – Satisfies all our basic principles.– Measurable in money terms, can be introduced in
any social welfare, inequality or poverty measure.
• Cons: – Less intuitive than happiness or HDI – but these
approaches do not satisfy our basic principles.– Choice of reference values: an ethical question,
hence room for debate.– More information is needed about “preferences”.
Outline
1. Principles for a measure of social progress.
2. A specific proposal: equivalent income.
3. Illustration: well-being and social progress in Europe between 2008 and 2010.
Social Progress in Europe: An illustration
• European Social Survey, 2008 and 2010.• 18 countries: 15 EU-members, Switzerland, Norway,
the Russian Federation. About 52,000 individual observations.
• Dimensions:
Estimating preferences
c
c
Estimating preference differences
• Assumption: preference heterogeneity between socio-demographic groups, not between countries.
c
Income, equivalent income, happiness (2010)
Income Equivalent income Happiness(Norway, Swits.) (Norway, Swits.) (Denmark, Swits.)
Germany 28986 (6) 3272 (10) 7.26 (9)
Denmark 28162 (7) 6915 (4) 8.35 (1)
France 25779 (10) 3604 (9) 6.34 (15)
Spain 22282 (11) 3245 (11) 7.30 (8)
Greece 19388 (13) 2547 (12) 5.71 (17)
(Russia, Estonia) (Russia, Hungary) (Greece, Russia)
Income, equivalent income, happiness (2010)
Income Equivalent income Happiness(Norway, Swits.) (Norway, Swits.) (Denmark, Swits.)
Germany 28986 (6) 3272 (10) 7.26 (9)
Denmark 28162 (7) 6915 (4) 8.35 (1)
France 25779 (10) 3604 (9) 6.34 (15)
Spain 22282 (11) 3245 (11) 7.30 (8)
Greece 19388 (13) 2547 (12) 5.71 (17)
(Russia, Estonia) (Russia, Hungary) (Greece, Russia)
Income, equivalent income, happiness (2010)
Income Equivalent income Happiness(Norway, Swits.) (Norway, Swits.) (Denmark, Swits.)
Germany 28986 (6) 3272 (10) 7.26 (9)
Denmark 28162 (7) 6915 (4) 8.35 (1)
France 25779 (10) 3604 (9) 6.34 (15)
Spain 22282 (11) 3245 (11) 7.30 (8)
Greece 19388 (13) 2547 (12) 5.71 (17)
(Russia, Estonia) (Russia, Hungary) (Greece, Russia)
Social welfare (2010)
Income ( = 1) Income ( = 5) Equivalent income ( = 5)
(NO, CH) (NO, SE) (NO, CH)
United Kingdom 29794 (5) 11262 (9) 281 (7)
Germany 28986 (6) 12754 (7) 180 (10)
Denmark 28162 (7) 13828 (5) 595 (4)
Belgium 27477 (8) 13299 (6) 390 (5)
Spain 22282 (11) 8668 (13) 156 (11)
Greece 19388 (13) 7716 (14) 115 (12)
Czech Republic 16729 (14) 8983 (11) 89 (14)
(RU, EE) (EE, RU) (RU, HU)
Yearly growth rates (2008-2010)
income growth(=0)
Equivalent income growth (=5)
(CH, PL) (CH, RU)
Switserland + 7.35% (1) +11.18% (1)
Germany + 0.09% (3) - 4.19% (9)
Belgium - 0.55% (4) + 6.21% (3)
Denmark - 1.73% (8) -4,64% (10)
Spain - 2.24% (11) -11,19% (17)
Greece - 5.81% (17) -21,72% (18)
Estonia - 8.60% (18) -9,29% (15)
(GR, EE) (ES, GR)
Conclusion
1. We strongly believe in the basic principles. Debate should be about their ethical foundation.
2. The equivalent income is an interesting concept, but there may be other approaches.
3. Our empirical illustration is only meant to be an illustration, but interesting (first) findings.
From income to equivalent income (2010)
from income to equivalent
income
health unemploy-ment
social in-teractions
safety
(DK, NO, SE)
Germany -75% -52% -3% -38% -20%
Denmark -86% -67% -6% -39% -31%
France -86% -67% -3% -44% -29%
Spain -87% -45% -5% -61% -44%
Greece -89% -73% -1% -48% -30%
(EE, HU, RU)
Direct effects for some typical countries
POOLED France Germany Great Brit. Switserland
log income 0.371*** 0.673*** 0.530*** 0.189** 0.205***
health 0.661*** 0.614*** 0.703*** 0.469*** 1.109***
unemployment -0.840*** -0.672* -0.883*** -1.088*** -1.357*
social interactions
0.143*** 0.108** 0.170*** 0.179*** 0.049
personal safety 0.224*** 0.215** 0.263*** 0.274*** 0.189+
N 52137 3334 4620 3812 2584
Results
Equivalent income (2010) Gini equivalent income
POOLED SPECIFIC POOLED SPECIFIC
France 3529 (9) 7797 (3) 0.70 (8) 0.50 (1)
Germany 3188 (10) 5230 (6) 0.74 (11) 0.64 (3)
Great Brittain 5324 (5) 2688 (11) 0.72 (9) 0.82 (16)
Switserland 7706 (2) 5100 (7) 0.66 (3) 0.81 (14)