Social Indicators Research

, Volume 126, Issue 1, pp 21–55 | Cite as

Beyond GDP: Using Equivalent Incomes to Measure Well-Being in Europe

Article

Abstract

It has become widely accepted that focusing exclusively on income growth may lead to a too narrow-sighted measure of changes in well-being. People care about other dimensions of life, such as their health, employment, social interactions and personal safety. Moreover, an exclusive focus on income growth remains blind to the distribution of income and well-being in the society. We propose therefore a set of five principles for a richer measure of well-being. In particular, we advocate the use of a measure based on “equivalent incomes”, which satisfies these principles. We discuss and illustrate how this equivalent income approach can be implemented in Europe, using the ESS data for 2008 and 2010. We find that introducing inequality aversion and including other dimensions in the analysis leads to a remarkably different perspective on the growth of well-being in Europe.

Keywords

Equivalent incomes Preferences Growth in well-being Europe 

References

  1. Alkire, S. (2002). Dimensions of human development. World Development, 30(2), 181–205.CrossRefGoogle Scholar
  2. Angelini, V., Cavapozzi, D., Corazzini, L., & Paccagnella, O. (2012). Age, health and life satisfaction among older Europeans. Social Indicators Research, 105(2), 293–308.CrossRefGoogle Scholar
  3. Atkinson, A. B., Cantillon, B., Marlier, E., & Nolan, B. (2002). Social indicators: The EU and social exclusion. Oxford: Oxford University Press.CrossRefGoogle Scholar
  4. Bargain, O., Decoster, A., Dolls, M., Neumann, D., Peichl, A., & Siegloch, S. (2013). Welfare, labor supply and heterogeneous preferences: evidence for Europe and the US. Social Choice and Welfare, 41(4), 789–817.CrossRefGoogle Scholar
  5. Becker, G. S., Philipson, T. J., & Soares, R. R. (2005). The quantity and quality of life and the evolution of world inequality. American Economic Review, 95(1), 277–291.CrossRefGoogle Scholar
  6. Bleys, B. (2012). Beyond GDP: Classifying alternative measures for progress. Social Indicators Research, 109(3), 355–376.CrossRefGoogle Scholar
  7. Box, G. E. P., & Cox, D. R. (1964). An analysis of transformations. Journal of the Royal Statistical Society: Series B (Methodological), 26(2), 11–252.Google Scholar
  8. Clark, D. (2005). Sen’s capability approach and the many spaces of human well-being. Journal of Development Studies, 41(8), 1339–1368.CrossRefGoogle Scholar
  9. Clark, A. E., & Oswald, A. J. (2002). A simple statistical method for measuring how life events affect happiness. International Journal of Epidemiology, 31, 1139–1144.CrossRefGoogle Scholar
  10. Cobb, C. W., & Rixford, C. (1998). Lessons learned from the history of social indicators. San Francisco: Redefining Progress.Google Scholar
  11. Currie, J. (2011). Inequality at birth: Some causes and consequences. American Economic Review (Papers and Proceedings), 101(3), 1–22.CrossRefGoogle Scholar
  12. Deaton, A. (2008). Income, health, and well-being around the world: Evidence from the Gallup World Poll. Journal of Economic Perspectives, 22(2), 53–72.CrossRefGoogle Scholar
  13. Decancq, K. (2014). Copula-based measurement of dependence between dimensions of well-being. Oxford Economic Papers, 66(3), 681–701.CrossRefGoogle Scholar
  14. Decancq, K., Fleurbaey, M., & Schokkaert, E. (2015). Inequality, income, and well-being. In A. B. Atkinson & F. Bourguignon (Eds.), Handbook on income distribution (Vol. 2, pp. 67–140). Amsterdam: Elsevier.Google Scholar
  15. Decancq, K., Fleurbaey, M., & Schokkaert, E. (forthcoming). Happiness, equivalent incomes, and respect for individual preferences. Economica.Google Scholar
  16. Decancq, K., & Lugo, M. A. (2013). Weights in multidimensional indices of well-being: An overview. Econometric Reviews, 32(1), 7–34.CrossRefGoogle Scholar
  17. Decancq, K., Van Ootegem, L., & Verhofstadt, E. (2013). What if we voted on the weights of a multidimensional well-being index? An Illustration with Flemish Data. Fiscal Studies, 34(3), 315–332.CrossRefGoogle Scholar
  18. Diener, E., & Suh, E. (1997). Measuring quality of life: economic, social and subjective indicators. Social Indicators Research, 40(1–2), 189–216.CrossRefGoogle Scholar
  19. Donaldson, D., & Weymark, J. (1980). A single-parameter generalization of the Gini indices of inequality. Journal of Economic Theory, 22, 67–86.CrossRefGoogle Scholar
  20. Eurobarometer. (2011). Well-being: aggregate report. Eurobarometer Qualitative Studies.Google Scholar
  21. Eurofound. (2012). Third European Quality of Life Survey—Quality of Life in Europe: Impacts of the crisis. Luxembourg: Publications Office of the European Union.Google Scholar
  22. European Commission. (2009). GDP and beyond. Measuring progress in a changing world. Communication from the Commission to the Council and the European Parliament: COM(2009) 433.Google Scholar
  23. European Statistical System. (2011). Sponsorshop group on measuring progress, well-being and sustainable development: Final report adopted by the European Statistical System Committee in November 2011. Available on http://ec.europa.eu/eurostat/documents/42577/43503/SpG-Final-report-Progress-wellbeing-and-sustainable-deve.
  24. Ferreira, F. H. G., & Lugo, M. A. (2013). Multidimensional poverty analysis: Looking for a middle ground. World Bank Research Observer, 28(2), 220–235.CrossRefGoogle Scholar
  25. Ferrer-i-Carbonell, A., & Frijters, P. (2004). How important is methodology for the estimates of the determinants of happiness? Economic Journal, 114, 641–659.CrossRefGoogle Scholar
  26. Fleurbaey, M., & Blanchet, D. (2013). Beyond GDP. Measuring welfare and assessing sustainability. Oxford: Oxford University Press.CrossRefGoogle Scholar
  27. Fleurbaey, M., & Gaulier, G. (2009). International comparisons of living standards by equivalent incomes. Scandinavian Journal of Economics, 111(3), 597–624.CrossRefGoogle Scholar
  28. Fleurbaey, M., Luchini, S., Muller, C., & Schokkaert, E. (2013). Equivalent income and the economic evaluation of health care. Health Economics, 22(6), 711–729.CrossRefGoogle Scholar
  29. Fleurbaey, M., & Maniquet, F. F. (2011). A theory of fairness and social welfare. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  30. Hausman, D. (2007). What’s wrong with health inequalities? Journal of Political Philosophy, 15(1), 46–66.CrossRefGoogle Scholar
  31. Helliwell, J., Layard, R., & Sachs, J. (2013). World happiness report 2013. United Nation Sustainable Development Solutions Network.Google Scholar
  32. Howard, M. (2002). The weakness of civil society in post-communist Europe. Cambridge: Cambridge University Press.Google Scholar
  33. Jürges, H. (2007). True health vs. response styles: exploring cross-country differences in self-reported health. Health Economics, 16(2), 163–178.CrossRefGoogle Scholar
  34. Kahneman, D., & Krueger, A. (2006). Developments in the measurement of subjective well-being. Journal of Economic Perspectives, 20(1), 3–24.CrossRefGoogle Scholar
  35. King, M. (1983). Welfare analysis of tax reforms using household data. Journal of Public Economics, 23, 183–214.CrossRefGoogle Scholar
  36. Layard, R. (2005). Happiness: lessons from a new science. London: Allan Lane.Google Scholar
  37. Layard, R., Mayraz, G., & Nickell, S. (2008). The marginal utility of income. Journal of Public Economics, 92(8–9), 1846–1857.CrossRefGoogle Scholar
  38. Loewenstein, G., & Ubel, P. (2008). Hedonic adaptation and the role of decision and experienced utility in public policy. Journal of Public Economics, 92(8–9), 1795–1810.CrossRefGoogle Scholar
  39. McMahon, D. (2005). Happiness: a history. New York: Atlantic Monthly Press.Google Scholar
  40. Narayan, D. (2000). Voices of the poor: Can anyone hear us?. Washington, DC: World Bank Publication.CrossRefGoogle Scholar
  41. Neumayer, E. (1999). The ISEW: Not an index of sustainable economic welfare. Social Indicators Research, 48(1), 77–101.CrossRefGoogle Scholar
  42. Nussbaum, M. (2000). Women and human development: the capabilities approach. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  43. Nussbaum, M. (2008). Who is the happy warrior? Philosophy poses questions to psychology. Journal of Legal Studies, 37, S81–S113.CrossRefGoogle Scholar
  44. OECD. (2011). How’s life? Measuring well-being. Paris, OECD Publishing: doi:10.1787/9789264121164-en.
  45. OECD. (2014). All on board. Making inclusive growth happen. Paris: OECD.Google Scholar
  46. Pogge, T. (2002). Can the capability approach be justified? Philosophical Topics, 30(2), 167–228.CrossRefGoogle Scholar
  47. Schokkaert, E., Van Ootegem, L., & Verhofstadt, E. (2011). Preferences and subjective job satisfaction: measuring well-being on the job for policy evaluation. CESifo Economic Studies, 57(4), 683–714.CrossRefGoogle Scholar
  48. Sen, A. (1985). Commodities and capabilities. Amsterdam: North-Holland.Google Scholar
  49. Sen, A. (2004). Capabilities, lists, and public reason: continuing the conversation. Feminist Economics, 10(3), 77–80.CrossRefGoogle Scholar
  50. Somarriba, N., & Pena, B. (2009). Synthetic indicators of quality of life in Europe. Social Indicators Research, 94(1), 115–133.CrossRefGoogle Scholar
  51. Stiglitz, J., Sen, A., & Fitoussi, J.-P. (2009). Report by the commission on the measurement of economic performance and social progress. Paris. http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf.
  52. Veenhoven, R. (1996). Happy life expectancy: A comprehensive measure of quality-of-life in nations. Social Indicators Research, 39(1), 1–58.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.Herman Deleeck Centre for Social PolicyUniversity of AntwerpAntwerpBelgium
  2. 2.COREUniversité catholique de LouvainLouvain-La-NeuveBelgium
  3. 3.Department of EconomicsKU LeuvenLeuvenBelgium

Personalised recommendations