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As a second example of
how the development of the statistical and economic framework interacts with the data is,
we have chosen the work developed
by the group of people producing the index of economic well-being.
In one of the slides,
you will find out the main interesting reference related to this work.
Basically, the authors of these index pointed out that
the gross domestic product was a very poor indicator of the economic well-being.
The basic reason why this is a poor indicator
is because it only measures the consumption today, real consumption today,
on marketable products but it ignores
leisure and it ignores accumulation for benefits of future generations.
Furthermore, since income is measured only on its average,
we ignore the main features of the distribution of incomes.
This main features of the distribution of income can be at certain point
of poverty or extreme poverty.
So, this is really a relevant issue in terms of
well-being which is ignored by the concept of gross domestic product.
Of course, this is a real problem because if
countries or policy makers pay their attention in
order to improve the well-being of citizens in
their gross domestic product and as an indicator,
as a variable, it does not contain all what we want to know about well-being.
The policy implications of the measures taken can be
seriously misleading because we are not really targeting the right objective.
So on these grounds,
we believe it's rather relevant to define a new indicator,
a new composite indicator that somehow
covers and substitutes the gross domestic product and,
I say it again, covers these drawbacks that we have already mentioned before.
The main idea of the group of people who develop
the index of human well-being was that basically,
people are not only happy because of the consumption they made today
but they are also happy because of the consumption they expect to make tomorrow,
on future generations of their family.
So basically, savings and financial components are
of interest when analyzing the human well-being.
In the next slide,
we can find how a pre-specified theoretical framework is
able to distinguish between different dimensions of the human well-being.
Following this line, we distinguish our first dimension which is rather standard in
the economic literature which is the effective per capita consumption flows.
This is really the- according to two theoretical economics,
the main source of well-being from individuals.
Its consumption to day-by-day consumption,
also tomorrow. It flows.
Second issue that this also of interest or the second dimension would be, new, this one,
the accumulation of stocks of productive resources.
Stocks of productive resources somehow also affect the well-being of individuals because
it affects the consumption of individuals of future generations.
So, it's also of interest.
As we mentioned before,
we are also interested not only in
some moments of the distribution of income as the average,
but we are also interested in the full distribution
of the income and this would be also dimension
we will care about when we investigate the index of human well-being.
And finally, fourth issue that is also of much interest,
the fourth dimension would be the sources of economic security.
Well-being of individuals depend crucially also on their security.
Security with respect to job,
security with respect to health,
security with respect to world elderness.
All these securities are somehow affecting their economic well-being.
Now, in the next slides,
what we're going to do, basically,
is to discuss all of these dimensions
and let us do this also that every time we made the discussion,
we will also point out,
we tell the variables that are already available,
we tell the variables that are more difficult to find out in order
to approximate these dimensions we are taking into account.
This is going to be the scheme we are going to operate for any of the dimensions
we have in this index of economic well-being.
So, first of all,
the effective per capita consumption flows is
going to be a function basically of three main indicators.
First of all, the consumption of marketed goods.
This is, as I already told you before,
sort of a standard in the economics literature but then,
we are going to add two other consumptions that are less frequently included
in this type of composite on the elaboration of this composite indicator.
One is that public consumption and
the other one is the consumption of non-marketed goods.
This is basically the value of the household production and the value of leisure.
Can we assign directly variables
to these different indicators we have previously defined for this dimension?
The answer is sometimes yes, sometimes not.
For example, consumption in marketed goods
and public expenditure is easily related with some variable for a national account.
There is no problem there.
But unfortunately, for considering consumption for non-marketed goods,
the problem is more difficult.
There in the index of economic well-being,
it appears a variable that is named adjust relative cost of leisure.
This is, of course, a variable that this composed of that is somehow designed base on
other different indicators but is indeed much more difficult to elaborate and to explain.
Finally, in the next slide,
you will find out the explicit formula where it is calculated
this first dimension of the index of the human well-being.
Let us now then go to the next slide where we will discuss about
the second dimension of the index of
economic well-being that it will be the accumulation of stocks of productive resources.
There, we will distinguish, of course,
between different types of stocks and, of course,
for any of these stocks,
we will need a variable or a set of variables to approximate it.
We will distinguish between capital stock, financial stocks,
human capital stocks, and research and development of stocks.
Again, the relevant question here is "Do we
have available variables to approximate these different indicators?"
For example, in the case of capital of human capital or financial capital,
the answer is yes but in other cases, for example,
something that is named social cost of environmental degradation,
they try to find out a reasonable set of
variables that approximate these is much harder and it's much difficult.
Again, in the next slide,
you will find out the corresponding formula.
The corresponding expression to calculate the partial indicator for these direction.
Then, we go to the next dimension that could be income distribution.
The income distribution, as I said before,
is a very relevant dimension to explain human well-being.
And we will do it or we will be approximated in two different dimensions.
First of all, we are going to approximate an indicator named poverty.
And second, we are going to talk about an indicator named inequality.
Can these dimensions or can
these indicators be approximated by the corresponding variables?
For example, in the case of poverty,
we know that there is, for example,
the poverty gap variable is already standardized and available for all these countries.
So, in principal is, it can be rather standard to use it.
But, however, when we are talking about the inequality in the distribution of income,
then it is a bit more complicated.
The standard proposal in this case,
in this literature is to use the Gini index but other possible results are available.
As before, you can find the nexus in the next slide,
also the corresponding formula to calculate this indicator in the dimension,
I say it again, of income distribution.
Finally, let me just talk about the last but
not the least important dimension which is the insecurity dimension.
Human well-being is affect- sorry,
economic well-being is affected by insecurity in each dimensions.
For example, unemployment, illness,
single parent poverty, or old age.
In all these different indicators,
we also need to find the variables that somehow
approximate these indicators, these dimensions.
And then, can we assign variables to approximate them.
For example, in the types of calculations and the type of computation that
have been done for the index of economic well-being.
Basically, it has been used as a variable,
or as a proxy variable,
is the percentage of population out of at risk of any of these characteristics.
That can be a nice solution in some directions.
But it's probably improvable in others.
Stefan Andreas SperlichProfessor
Juan Manuel Rodriguez Poo (in Partnership with UNIGE)Professor
