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Indicators of inclusive growth to complement GDP growth. e-frame conference 11/02/2014 material by Paul Minty and Bartek Lessaer. The need for inclusive growth. OXFAM(2014) : 85 richest people in world own same as poorest half of population
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Indicators of inclusive growth to complement GDP growth e-frame conference 11/02/2014 • material by Paul Minty and Bartek Lessaer
The need for inclusive growth • OXFAM(2014): 85 richest people in world own same as poorest half of population • President Obama, Dec. 2013:growing inequality and lack of upward mobility “the defining challenge of our time” => Need to focus on inclusive nature of growth, not just growth itself
GDP ignores how benefits of growth distributed • Which measures? • Dashboard of indicators needed • to inform on distributional aspects, e.g. • Growth in real median income (total population + top & bottom quintiles) • Adjusted growth in real GDP per capita (Sen index) • Overall life satisfaction + associated gaps
Importance of use of data on household sector Stiglitz et al: material living standards better monitored through measures of household income and... GDP does not sufficiently capture changes in material well-being of households
Real growth in median disposable income and GDP/cap can differ markedly • what people actually receive out of national income • more focus on inclusive growth • easy to communicate • lack of strong link GDP/cap & median income • monitor median income to gauge inclusiveness of growth
Growth in (median) income can vary substantially across quintiles • monitor income developments within different parts of income distribution • (esp. lowest income quintile)
Real annual growth in (median) income clarifies real situation people face
Distributional adjustment of GDP/capita can strongly modify growth outcomes Adjust GDP/capita to take account of distributional issues Sen index: (1-Gini) • penalises countries w high inequalities (GDP/Cap ↓)
If ethics were not enough to stand up against social injustice there are: economic and social reasons too
What are the consequences of inequality on economic performance? High and rising inequality can undermine sustainable growth by • inducing insufficient demand + unsustainable borrowing at lower end of income distribution • amplifying risk of crisis or making it difficult for poor to invest in education -> lowers growth potential Key driver of duration of growth spells • longer growth spells associated with more equality in income distribution (Berg & Ostry, 2011)
Considerable variation between top and bottom quintiles of life satisfaction • Gap varies considerably among MS • largest in CEEC but also AT, DE and UK (even though average high) • smallest gaps in Benelux and Nordic MS
Money does not make you happy but it calms your nerves* • Income position important element in life satisfaction in most MS • more so in CEEC + DE, EL, PT & UK *A German saying
Happiness is a beautiful thing but it won't buy you money* • Strongest predictor: being deprived of at least two essential consumer items • 2/3 among those with low life satisfaction vs all others only 1/3 • Also being in arrears and poor quality housing * from a Czech song but a Slovak singer
The UN post-2015 agenda • Various international organisations have voiced preferences, e.g. UN: reduce by 1/2 share of households with incomes below half of national median World Bank: track income growth among bottom 40 % of distribution OECD: Initiative for inclusive growth • EU: framework should cover basic living standards + ensure benefits of growth and employment widely shared
Gap Between Rich And Poor Named 8th Wonder Of The World Social risks of inequality • damaging effect on socialtrust and civic involvement critical for functioning of societies cooperative behaviours, investment in education quality of institutions • potentially: higher criminality, social anxiety, lower subjective well-being => Gap Between Rich And Poor Named 8th Wonder Of The World
The problem of averages: When you've got your head in the fridge and your feet in the oven, you're – on average - very comfortable Thank youbartek.lessaer@ec.europe.eu Cf. ESDE 2013 chapter 7 by Paul Minty and Bartek Lessaer http://ec.europa.eu/social/BlobServlet?docId=11365&langId=en