Archive:Measuring more than 'just' economic development
- Published in Sigma - The Bulletin of European Statistics, 2010/02
Gross Domestic Product (GDP) is a well-known indicator which measures economic activity. ‘It is a valuable economic indicator which serves a purpose in economic policymaking. Due to the link between economic growth and aspects of quality of life such as employment and consumption, GDP is partly regarded as a proxy indicator of progress and well-being,’ said Walter Radermacher, Director-General of Eurostat.
Introduction
‘However, GDP was never intended to measure, and does not measure, well-being. Neither do GDP estimates include measures of clean environment, sustainability, social cohesion or how happy people are. This means that GDP alone is not enough to properly measure the progress of our society,’ he continued. ‘And a general question for a professional statistician is whether a single figure can truly reflect a complex phenomenon such as progress’.
The European Commission Communication, GDP and Beyond, and the Stiglitz Report focus on how to better measure progress. The statistics they recommend partly overlap with the needs of the Europe 2020 strategy, which focuses on smart, sustainable and inclusive growth.
‘How to best complement GDP to provide a more nuanced and accurate understanding of the growth and progress of society has been on the agenda of statisticians for some years, but now there is political momentum and the statistical world needs to deliver,’ he said.
Mr Radermacher said actions include developments in the fields of national accounts, environmental and social statistics. ‘What is required is a systematic approach, showing the links between the economy and environmental and social sustainability aspects, in order to better inform decisionmakers,’ he added.
Complementing averages with distribution
According to the Stiglitz Report and the European Commission Communication on GDP and Beyond, it is important that statisticians further analyse social sustainability, especially the distribution of income, consumption and the wealth of households.
‘Household surveys need to provide micro-economic information on the distribution of income, consumption and wealth. The averages or medians of these statistics are meaningful, but they do not tell the whole story about living standards,’ said Jean-Louis Mercy, Head of the Living Conditions and Social Protection Unit at Eurostat. He gave the example of a rise in average income, which is a positive phenomenon, but which may be unequally spread across income groups, leaving some households relatively worse off than others. Thus, average measures of income, consumption and wealth need to be accompanied by indicators that reflect their distribution across persons or households.
‘Ideally, all three dimensions of material living standards (income, consumption and wealth) should be published, as well as their joint distributions. It would give a better picture of how well off households are,’ said Mr Mercy. The good news is that plenty of data are available on distribution in Eurostat’s databases – primarily in the Labour Force Survey (LFS) and in the EU Survey on Income and Living Conditions (EU-SILC).
‘EU-SILC includes both micro-data and longitudinal information, which means we can see the evolution over time for households. We can, for example, study the chances of getting out of poverty once someone has ended up in this situation. We can also study transitions, for instance in the labour market, and its impact on welfare,’ said Mr Mercy.
Improving national accounts data
The not so good news is that EU-SILC and the LFS do not cover everything. They need to be extended and data from these two surveys need to be linked to other surveys, such as the Household Budget Survey and the European Central Bank’s survey on wealth. Furthermore, social data need to be reconciled with national accounts data to increase socioeconomic breakdowns in national accounts. There are several actions in this field. In spring 2010, Eurostat published real household disposable income figures for the first time, which give a fuller picture of the economic welfare of households than the traditional GDP figure alone. ‘The data on real household disposable income clearly demonstrate how the economic turndown has taken its toll on household incomes since the fourth quarter of 2008, while showing the stabilising effect of taxes and social contributions and benefits,’ said Denis Leythienne, in charge of the Quarterly Sector Accounts Team at Eurostat.
Later this year, Eurostat will publish an analysis of the distribution (survey data) and the evolution (national accounts data) of household finances.
‘In fact, data on income, consumption and wealth of households exist in national accounts, but we need to further improve their availability with respect to non-financial assets and we need to communicate better and deliver information which supports policymaking in the best possible way,’ said Gallo Gueye, Head of Eurostat’s National Accounts Methodology, Statistics for Own Resources Unit.
A longer-term project is to compile full balance-sheet accounts of households. Such accounts would give a better picture of the financial status of the whole economy – just as a balance sheet is a vital indicator of a company’s financial situation.
‘Measures of wealth are also central to analysing distributional aspects and sustainability. What is carried over into the future necessarily has to be expressed as stocks. The correct valuation of produced and non-produced assets, as well as financial assets, plays a crucial role,’ he continued.