Beyond Gdp: Measuring Economic Well- Study of Living Being in Canada and the Provinces, 1981- Standards 2010
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September 2011 151 Slater, Suite 710 Ottawa, Ontario K1P 5H3 613-233-8891, Fax 613-233-8250 [email protected] CENTRE FOR THE BEYOND GDP: MEASURING ECONOMIC WELL- STUDY OF LIVING BEING IN CANADA AND THE PROVINCES, 1981- STANDARDS 2010 Lars Osberg and Andrew Sharpe CSLS Research Report 2011-11 September 2011 i Beyond GDP: Measuring Economic Well-being in Canada and the Provinces, 1981-2010 Abstract This report presents new estimates of the Index of Economic Well-being (IEWB) and its four domains (consumption flows, stocks of wealth, economic equality and economic security) for Canada and the provinces for the 1981-2010 period. It finds that the IEWB advanced at a 0.78 per cent average annual growth rate over the period, below the 1.32 per cent growth for GDP per capita. Both the consumption and wealth domains experienced solid advances over the period, but these developments were offset by declines in the equality and economic security domains. The recent recession caused a decline in the IEWB for Canada, driven by declines in wealth and economic security. ii Beyond GDP: Measuring Economic Well-being in Canada and the Provinces, 1981-2010 Table of Contents Abstract ............................................................................................................................ i Executive Summary ....................................................................................................... iv List of Charts .................................................................................................................. ix List of Exhibits ............................................................................................................... xi List of Tables ................................................................................................................. xi I. The Index of Economic Well-being: Motivation and Framework .................................. 2 II. Trends in the Index of Economic Well-being for Canada and the Provinces, 1981-2010 ........................................................................................................................................ 7 A. Overall Trends in the Index of Economic Well-being .............................................. 7 i. Trends in Canada................................................................................................... 7 ii. Trends in the provinces ........................................................................................ 9 B. Overall Trends in the Four Domains of the Index of Economic Well-being ........... 12 i. Measurement of trends in the scaled domain indices ............................................ 12 ii. Trends in Canada ............................................................................................... 13 C. Trends in the Components of the Consumption Flows Domain .............................. 14 i. Private Consumption ........................................................................................... 16 ii. Average Family Size .......................................................................................... 17 iii. Government Expenditures on Goods and Services ............................................. 18 iv. Unpaid Work ..................................................................................................... 19 v. Regrettable Expenditures .................................................................................... 21 vi. Life Expectancy ................................................................................................ 22 vii. Total Adjusted Consumption Flows .................................................................. 23 D. Trends in the Components of the Stocks of Wealth Domain .................................. 24 i. Physical Capital................................................................................................... 26 ii. R&D Capital ...................................................................................................... 27 iii. Natural Resources ............................................................................................. 28 iv. Net International Position .................................................................................. 30 v. Human Capital ................................................................................................... 31 vi. Social Costs of Environmental Degradation ....................................................... 32 vii. Total Wealth Stocks ......................................................................................... 35 E. Trends in the Economic Equality Domain .............................................................. 37 i. Income Inequality................................................................................................ 37 ii. Poverty ............................................................................................................... 39 iii. Overall Economic Equality Domain .................................................................. 41 F. Trends in the Economic Security Domain .............................................................. 42 i. Risk from Unemployment ................................................................................... 43 ii. Financial Risk from Illness ................................................................................. 48 iii. Risk from Single-Parent Poverty ....................................................................... 50 iii iv. Risk of Poverty in Old Age................................................................................ 55 v. Weighting of the Components in the Index of Economic Security Domain ......... 58 vi. Trends in the Economic Security Domain .......................................................... 59 III. Sensitivity Analysis ................................................................................................. 60 A. Alternative 1: Consumption Weighted More Heavily than Wealth ......................... 62 i. Trends in Canada................................................................................................. 62 ii. Trends in the provinces ...................................................................................... 62 iii. Summary........................................................................................................... 64 B. Alternative 2: No Weight Given to Economic Equality .......................................... 65 i. Trends in Canada................................................................................................. 65 ii. Trends in the provinces ...................................................................................... 65 iii. Summary........................................................................................................... 66 C. Alternative 3: High Weights Given to Economic Equality and Security ................. 66 i. Trends in Canada................................................................................................. 66 ii. Trends in the provinces ...................................................................................... 67 D. Overall Summary of Sensitivity Analysis .............................................................. 67 IV. Recent Developments in the Index of Economic Well-being .................................... 68 V. Conclusion................................................................................................................ 71 Bibliography ................................................................................................................. 73 iv Beyond GDP: Measuring Economic Well-being in Canada and the Provinces, 1981-2010 Executive Summary In 1998, the Centre for the Study of Living Standards (CSLS) released the first estimates of the Index of Economic Well-being for Canada (Osberg and Sharpe, 1998). The Index of Economic Well-being (IEWB) is a composite index based on a conceptual framework for measuring economic well-being developed by Osberg (1985). Over the past decade, the CSLS has extended the geographical coverage of the Index to the Canadian provinces and to major OECD countries and has made a number of changes to the methodology used to construct the Index. The objective of this report is to present updated estimates of the IEWB for Canada and the provinces over the 1981-2010 period. The report also outlines trends in the four domains of economic well-being that make up the Index – consumption, wealth, economic equality, and economic security. Furthermore, the report offers an analysis of the sensitivity of our results to the subjective choice of weights assigned to those four domains and a description of the performance of the IEWB compared to GDP per capita through the most recent recession. The Index of Economic Well-being: Motivation and Conceptual Framework The conceptual framework underlying the Index of Economic Well-being is based on two main ideas. First, economic well-being has multiple dimensions and an index should reflect that fact by aggregating measures of the various domains of economic well-being. Second, an index of economic well-being should reflect the fact that individuals differ (and have a moral right to differ) in the relative weights they assign to the different domains of economic welfare. In order to be useful to all individuals irrespective of those value differences, an index of well-being should make value judgments as explicit and transparent as possible. The most frequently cited