indicators of inclusive growth to complement gdp growth
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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 - PowerPoint PPT PresentationTRANSCRIPT
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
Annual change in real GDP per capita and in real annual median income (%)
Source: Eurostat, national accounts and own calculations based on Eurostat, EU-SILC
-15
-10
-5
0
5
10
2004 2005 2006 2007 2008 2009 2010
ES
Real Gross DomesticProduct per capitagrowth
Real annual growth inmedian income
-15
-10
-5
0
5
10
2004 2005 2006 2007 2008 2009 2010
EL
Real Gross DomesticProduct per capitagrowth
Real annual growth inmedian income
-15
-10
-5
0
5
10
2004 2005 2006 2007 2008 2009 2010
SE
Real Gross DomesticProduct per capitagrowth
Real annual growth inmedian income
-15
-10
-5
0
5
10
2005 2006 2007 2008 2009 2010
UK
Real Gross DomesticProduct per capitagrowth
Real annual growth inmedian income
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Growth in (median) income can vary substantially across quintiles
monitor income developments within different parts of income distribution
(esp. lowest income quintile)
Source: Own calculations based on Eurostat, EU-SILC
90
95
100
105
110
115
120
125
130
2004 2005 2006 2007 2008 2009 2010
Index of median income by quintile (2004 = 100), Austria
Median of 1st quintile
Median of 2nd quintile
Median of 3rd quintile
Median of 4th quintile
Median of 5th quintile
90
95
100
105
110
115
120
125
130
2004 2005 2006 2007 2008 2009 2010
Index of median income by quintile (2004 = 100), Denmark
Median of 1st quintile
Median of 2nd quintile
Median of 3rd quintile
Median of 4th quintile
Median of 5th quintile
90
95
100
105
110
115
120
125
130
2004 2005 2006 2007 2008 2009 2010
Index of median income by quintile (2004 = 100), Portugal
Median of 1st quintile
Median of 2nd quintile
Median of 3rd quintile
Median of 4th quintile
Median of 5th quintile
90
95
100
105
110
115
120
125
130
2004 2005 2006 2007 2008 2009 2010
Index of median income by quintile (2004 = 100), Spain
Median of 1st quintile
Median of 2nd quintile
Median of 3rd quintile
Median of 4th quintile
Median of 5th quintile
Real annual growth in (median) income clarifies real situation people face
PORTUGAL
SPAIN
-10
-5
0
5
10
2005 2006 2007 2008 2009 2010
Annual growth in median income across quintiles in PT (%, adjusted for inflation)
Bottom quintile
2nd Quintile
3rd Quintile
4th Quintile
Top quintile
-10
-5
0
5
10
2005 2006 2007 2008 2009 2010
Annual growth in median income across quintiles in ES (%, adjusted for inflation)
Bottom quintile
2nd Quintile
3rd Quintile
4th Quintile
Top quintile
-10
-5
0
5
10
2005 2006 2007 2008 2009 2010
Top and bottom quintile median income growth in PT (%, adjusted for inflation)
Bottom quintile Top quintile
-10
-5
0
5
10
2005 2006 2007 2008 2009 2010
Top and bottom quintile median income growth in ES (%, adjusted for inflation)
Bottom quintile Top quintile
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
*A German saying
Income position important element in life satisfaction in most MS
more so in CEEC + DE, EL, PT & UK
Money does not make you happy but it calms your nerves*
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
Social risks of inequality
damaging effect on social trust 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
Thank [email protected]
Cf. ESDE 2013 chapter 7 by Paul Minty and Bartek Lessaer
http://ec.europa.eu/social/BlobServlet?docId=11365&langId=en
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