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Beyond GDP: Measuring social progress in Europe

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

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Beyond GDP: Measuring social progress in Europe

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  1. Beyond GDP:Measuringsocialprogress in Europe Koen Decancq – Erik Schokkaert Stirling June 2014

  2. Introduction • “Beyond GDP” • Questfor a measure of socialprogress • Discussion on three levels: • Principlesfor a measure of socialprogress • A specificproposal: equivalent income. • Illustration: well-being and socialprogress in Europe between 2008 and 2010.

  3. Introduction • “Beyond GDP” • Questfor a measure of socialprogress • Discussion on three levels: • Principlesfor a measure of socialprogress • A specificproposal: equivalent income. • Illustration: well-being and socialprogress in Europe between 2008 and 2010.

  4. Principle 1: Focus on individual well-being The ultimate criterion to evaluatesocialprogress is the well-being of individuals making up the society.

  5. Principle 2: Focus on outcomes The well-being of individualsdepends on the outcomes in the different dimensions of life. • Well-being is notfullydeterminedbyincome. • Otherdimensions of life are essential (e.g., health, quality of socialinteractions and of the natural environment, safety, … ).

  6. Principle 3: Account forcumulativedeprivation

  7. Principle 3: Account forcumulativedeprivation

  8. Principle 3: Account forcumulativedeprivation Accounting forcumulativedeprivationrequiresto construct first anindex of well-being at the individual level and thenaggregatethese well-being indices acrossindividuals. • Comparewithdashboards of development • … and the Human Development Index (HDI)

  9. Principle 4: Respect forindividualideasabout a goodlife The measure of individual well-beingshould respect the individualideasaboutwhat is a good life. • Thisdiscards the use of objective indicators, such as the Human Development Index (HDI) • And also the MultidimensionalPoverty Index, …

  10. Life satisfactionmeasures do not respect preferences • Thenwhynotuse “happiness”?

  11. Life satisfaction measures do not respect preferences • IfAnn and Bob have the samepreferences, respect forpreferences means thatAnn shouldbeseen as better off thanBob. • Now look at whatcould happen, when we askto Ann and Bob howsatisfiedtheywouldbe in bothsituations • Bob is happierthan Ann • Thenwhynotuse “happiness”? 5 for Ann 9 for Bob 3 for Ann 7 for Bob

  12. Principle 5: inequalityaversion Justicerequires accounting forinequality in individual well-being. • Social welfare = M (1 - I ) Average Inequality

  13. Principle5: inequalityaversion

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

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

  16. An example: income and health

  17. An example: income and health

  18. An example: income and health

  19. An example: income and health

  20. An example: income and health

  21. Pros and cons of equivalent incomes • Pros: • Satisfies all our basic principles. • Measurable in money terms, canbeintroduced in anysocial welfare, inequality or povertymeasure. • Cons: • Lessintuitivethanhappiness or HDI – but these approaches do notsatisfyour basic principles. • Choice of referencevalues: anethical question, hence room fordebate. • More information is neededabout “preferences”.

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

  23. SocialProgress in Europe: An illustration • European Social Survey, 2008 and 2010. • 18 countries: 15 EU-members, Switzerland, Norway, the Russian Federation. About 52,000 individualobservations. • Dimensions:

  24. Estimatingpreferences c c

  25. Estimatingpreferencedifferences • Assumption: preferenceheterogeneitybetweensocio-demographicgroups, notbetweencountries. c

  26. Income, equivalent income, happiness (2010)

  27. Income, equivalent income, happiness (2010)

  28. Income, equivalent income, happiness (2010)

  29. Social welfare (2010)

  30. Yearlygrowthrates (2008-2010)

  31. Conclusion • We stronglybelieve in the basic principles. Debateshouldbeabouttheirethical foundation. • The equivalent income is aninteresting concept, but theremaybeother approaches. • Ourempiricalillustration is onlymeant to beanillustration, but interesting (first) findings.

  32. From income to equivalent income (2010)

  33. Direct effects for some typical countries

  34. Results

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