GDP and Welfare

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GDP and Welfare

Workshop

Tuesday 18 September 2018, 10:55 — 16:15

Workshop

National Institute of Economic and Social Research (NIESR), 2 Dean Trench Street, Smith Square, London, SW1P 3HE.

It is widely recognised that GDP, designed as a measure of economic activity, is at best a very imperfect indicator of welfare. The papers presented at this workshop discuss ways in which it is possible to produce indicators which are a better guide to changes in welfare and thus to economic performance.

Agenda

10:30 Registration

10:55 Welcome and Introductions by Rebecca Riley, (ESCoE, NIESR)

11:00 Morning Session Chair: Silvana Tenreyro (Bank of England)

GDP and Welfare: A Spectrum of Opportunity
By Richard Heys (ONS)

This paper discusses the link between GDP and welfare addressing practical ways in which national accounting statistics can be developed to produce a range of aggregates suitable for addressing particular policy problems, and, in particular, statistics which are more closely related to welfare than is GDP.

Towards a Framework for Time Use, Welfare and Household-centric Economic Measurement
By Diane Coyle (Cambridge, ESCoE); with Leonard Nakamura (Federal Reserve Bank of Philadelphia)

What is meant by economic progress and how should it be measured? The conventional answer is growth in real GDP over time or compared across countries, a money metric adjusted for the general rate of increase in prices. This paper discusses one alternative measure of economic progress, combining an extended utility framework considering time allocation over paid work, household work, leisure and consumption with measures of objective or subjective well-being while engaging in different activities. Developing a money metric growth rate for this wider economic welfare measure would require the collection of time use statistics as well as well-being data.  We advocate an experimental set of time and well-being accounts, with a particular focus on the digitally-driven shifts in behaviour.

12:30 Lunch

13:15 Afternoon session Chair: Rebecca Riley (ESCoE, NIESR)

A Democratic Measure of National Income Growth
by Martin Weale (King’s College, London, ESCoE); with Andrew Aitken (NIESR, ESCoE)

Conventional measures of economic growth are structured round aggregates and arithmetic averages with the consequence that measures of growth give more weight to the growth experience of rich households than poor ones: they are plutocratic. This paper presents a measure of real national income growth for the UK which is the average of each household’s real growth experience and is therefore democratic in form.

The Cost of Nations: Preference Heterogeneity in International Comparison
By Tom Crossley (Essex) with Ingvild Almas (Stockholm and NHH) and Serhat Ugurlu (NHH)

Traditional approaches to international price comparisons yield a single set of symmetric and transitive (purchasing power parity) indices. Although these indices are useful measures of aggregate differences in goods prices, in general they lack welfare foundations. In this paper, we discuss how we can create indices that measure a nation’s cost of living by using a social welfare function. We develop indices that capture the cost of keeping a country at the same social welfare level at foreign prices. These “Cost of Nations” indices aggregate explicitly from optimizing individuals and allow for heterogeneity and nonhomothetic preferences. As with the analogous individual-level Könus cost of living index, these Cost of Nations indices are not, in general, symmetric and transitive. However, we propose two methods of imposing symmetry and transitivity. In contrast to existing approaches, our approach allows us to characterize the size of the required adjustments to a social-welfare-constant index.  Conversely, we can document the deviations from symmetry and transitivity required to have a social-welfare-constant Cost of Nations index. We apply our ideas to micro data from the US, the UK and Spain.

14:45 Tea

15:00 Measuring Production and Economic Welfare in a National Accounts Framework
By Paul Schreyer (OECD)

GDP aims at measuring (mainly) market activity and as such serves a different purpose from measures that are designed to capture economic wellbeing. But both can be elaborated consistently in a national accounts framework and some examples will be given to this effect. The presentation will also argue that despite their differences in purpose, measures of production and economic wellbeing are not independent of each other.

15:45 General discussion – sum up

16:15 Close