European Economic and Social CommitteeJoint ECO Section – SDO Hearing on

Beyond GDP Involvement of Civil Society in the Development of Complementary

Indicators

Brussels, 26th January 2012

“Lessons for ‘Beyond GDP’ from the Great Recession”

Brendan WalshProfessor Emeritus

School of Economics, University College, DublinE-mail: Brendan.m.walsh@ucd.ie

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Over the last five years the European economy has suffered the severest setback since the Great Depression.

What can we learn from the record of these years for the ‘Beyond GDP’ agenda?

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Since 2007 EU27 has experienced an unprecedented fall in GDP and a very sharp rise in unemployment

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GDP Growth Rate EU27 (constant prices)

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Unemployment RateEU27

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The impact of the recession has not been uniform across countries.

In particular, the unemployment rate has risen much more in some countries than in others.

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GDP Growth Rates (Constant Prices)

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Germany

Unemployment Rates

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Impact on well-being

Not surprisingly, these developments have had consequences for social indicators and measures of subjective well-being (SWB).

The overall level of SWB in the EU27 had been declining since 2004 and this decline accelerated at the onset of the crisis, but it seems to have levelled off since 2009.

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Eurobarometer Measure of Life Satisfaction EU27

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The impact of the crisis on populations’ well-being will lead to a re-emphasis on the importance of GDP and its components as measures of progress.

This will make it harder to consolidate the gains that have been made in promoting the importance of other indicators during the recession

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The already-large disparities in SWB between

EU countries have widened since 2007.

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The Satisfied and the Dissatisfied

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The impact of the crisis on the worst-affected countries has varied markedly

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Accounting for Variations in SWB

It is important to explore the factors that

increased these disparities during the crisis.

Using the Eurobarometer Life Satisfaction data

for the 27 countries of the enlarged EU over

the eight years 2004-2011 we find -

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• Higher income is consistently associated with higher

LS

– Its influence declines at higher income levles

• High unemployment reduces LS

• High inflation reduces LS

• After allowing for these macroeconomic variables,

substantial national effects in SWB persist.

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• But even when income, unemployment, and inflation have been taken into account, significant fixed country effects remain.

• It is likely that cultural and governance factors contribute to these differences.

• There is a clear case for the involvement of civil society in identifying these factors in order to promote national well-being.

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Residuals from pooled regression

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To conclude:

• Enormous progress has been made over the recent past in collecting, collating, and disseminating valid indices of social progress.

• The problem is not a deficiency of indictors but rather their limited impact on policy making.

• It is vital that the current adjustment process within the EU take more account of the effects of macroeconomic policies on unemployment, living standards, and SWB.

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