Uses of National Income Data

A2 Economics

Aims and Objectives

Aim:

• Understand uses of national income data.

Objectives:

• Assess problems with using GDP as a measure of living standards

• Define HDI, HPI, MDP & MI

• Explain how these measures measure standards of living and welfare

• Analyse HDI internationally

• Evaluate the economics of happiness

GDP, GNP & NI – Poor Measures of Living Standards

GDP

• Value of output produced by resources in the UK

GNP

• Output produced by resources within the UK, plus net property income (interests, profits, dividends flowing in minus property flowing out) from abroad.

NI

• Output produced by resources in the UK, plus net property income from abroad, minus depreciation from the UK’s capital equipment.

Ignores the effect growth has on leisure and welfare, therefore difficult to assess if there has been significant changes in living standards.

GDP per capita can rise, yet the distribution of income can become more unequal.

Excludes non-monetised sector, such as unpaid labour which contributes to GDPEconomic growth may

lead to negative externalities which affect living standards. GDP over estimates living standards.

Reasons Poor

Measure

GDP incompletely

measures output

Distribution of income

Ignores value of leisure

Negative externalities

Alternative Measures of Standards of Living

• Human Development Index

• Human Poverty Index

• Measure of Domestic Progress

• Misery Index

Human Development Index (HDI)

• A measure of economic welfare based on three indicators – standard of living, life expectancy and educational attainment.

• The maximum value of HDI is 1.

• The closer a country’s HDI is to 1 the greater its’ human development in terms of these three indicators.

• Data

• http://hdr.undp.org/en/statistics/

HDI Rank

Country Life Expectancy 2011Education Index

2011GDP Per Capita PPP$ Terms

2009HDI Value 2011

Top 10

1 Norway 81.1 0.985 47,676 0.943

2 Australia 81.9 0.981 34,259 0.929

3 Netherlands 80.7 0.931 36,358 0.91

4 United States 78.5 0.939 41,761 0.91

5 New Zealand 80.7 1 24,706 0.908

6 Canada 81 0.927 34,567 0.908

7 Ireland 80.6 0.963 36,278 0.908

8 Liechtenstein 79.6 0.818 .. 0.905

9 Germany 80.4 0.928 32,255 0.905

10 Sweden 81.4 0.904 32,314 0.904

28 UK 80.2 0.815 32,147 0.863

Bottom 5

183 Chad 49.6 0.219 1,181 0.328

184 Mozambique 50.2 0.222 804 0.322

185 Burundi 50.4 0.353 356 0.316

186 Niger 54.7 0.177 626 0.295

187 Congo 48.4 0.356 290 0.286

Human Poverty Index (HPI)

• A measure of economic welfare based on four basic dimensions of human life: longevity, knowledge, economic provisioning and social inclusion.

• % of people likely to die before the age of 60

• % of people whose ability to read and write is far from adequate

• proportion of the population with disposable incomes of less than 50% of the medium

• proportion of long term unemployed (12 months of more)

Human Poverty Index & UK

• More than 100 million people are relatively poor within all of the twenty-four OECD countries

• In the UK, 13.5% of the population have an income below the income-poverty threshold of 50% of average income

• 21.8% of the population in this country are said to be "functionally illiterate" - unable to read many basic instructions on medicine bottles or read stories to their children

• The UK ranked 14th (out of 17) for long-term unemployment

• Sweden has the lowest overall incidence of human poverty followed by the Netherlands and Germany. The worst country is the USA followed by Ireland and the UK

The Misery Index (MI)

• A measure of economic welfare constructed by adding the unemployment rate to the inflation rate on the assumption that a high inflation and unemployment rate means a higher level of economic and social costs for a country.

• Guardian Article

Measure of Domestic Progress (MDP)

• A measure of economic welfare designed to reflect progress in quality of life and progress towards a sustainable economy by factoring in the social and environmental costs of growth, and benefits of unpaid work such as volunteer work and house work.

• Essentially is the ‘Economics of Happiness’

• Article

Measures of Standard of Living and Economic Welfare

• Having discussed and analysed the different measures of economic welfare and standards of living, which do you feel is the most accurate?

• What do you feel are the limitations of these measures?

– HDI

– HPI

– MI

– MDP