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A Tepid Recovery: the Index of Economic Well-Being for Canada

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A Tepid Recovery: the Index of Economic Well-Being for Canada June 2016 151 Slater, Suite 710 Ottawa, Ontario K1P 5H3 Tel: 613-233-8891 Fax: 613-233-8250 [email protected] CENTRE FOR THE A TEPID RECOVERY: THE INDEX OF ECONOMIC STUDY OF LIVING WELL-BEING FOR CANADA AND THE STANDARDS PROVINCES, 1981-2014 Jasmin Thomas and James Uguccioni CSLS Research Report 2016-05 June 2016 1 A Tepid Recovery: the Index of Economic Well- being for Canada and the Provinces, 1981-2014 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 1981-2014 period. We find that the IEWB grew at an average annual rate of 0.74 per cent per year over the period, notably below the 1.30 per cent growth of GDP per capita over the same time frame. Both the consumption and wealth domains steady advanced over the period, but their growth was offset by declines in the equality and economic security domains. Since 2008, reflecting the 2009 recession and the weak recovery, Canada’s IEWB has exhibited meager growth, advancing only 0.09 per cent per year. This reflects declines in all domains of the IEWB except consumption. Six of the ten provinces had lower levels for their respective IEWBs in 2014 than in 2008 (Newfoundland and Labrador, Prince Edward Island, Ontario, Saskatchewan, Alberta, and British Columbia). 2 A Tepid Recovery: the Index of Economic Well- being for Canada and the Provinces, 1981-2014 Table of Contents Abstract ............................................................................................................................... 1 Executive Summary ............................................................................................................ 4 I. The Index of Economic Well-being: Motivation and Framework .................................. 9 II. Trends in the IEWB for Canada and the Provinces, 1981-2014 .................................. 14 A. Overall IEWB ........................................................................................................... 14 i. Canada .................................................................................................................... 14 ii. Provinces ............................................................................................................... 15 B. Overall Trends in the Four Domains of the Index of Economic Well-being ........... 18 i. Measurement of Trends in the Scaled Domain Indices .......................................... 18 ii. Canada ................................................................................................................... 19 C. Trends in the Components of the Consumption Flows Domain .............................. 21 i. Personal Consumption ............................................................................................ 23 ii. Average Family Size ............................................................................................. 24 iii. Government Expenditures on Goods and Services .............................................. 25 iv. Unpaid Work ........................................................................................................ 27 v. Regrettable Expenditures ....................................................................................... 28 vi. Life Expectancy .................................................................................................... 29 vii. Total Adjusted Consumption Flows .................................................................... 30 D. Trends in the Components of the Stocks of Wealth Domain ................................... 32 i. Physical Capital ...................................................................................................... 35 ii. R&D Capital .......................................................................................................... 36 iii. Natural Resources ................................................................................................ 37 iv. Net International Position ..................................................................................... 40 v. Human Capital ....................................................................................................... 41 vi. Social Costs of Environmental Degradation ........................................................ 42 vii. Total Wealth Stocks ............................................................................................ 45 E. Trends in the Economic Equality Domain ................................................................ 47 i. Income Inequality ................................................................................................... 48 ii. Poverty .................................................................................................................. 50 iii. Overall Economic Equality Domain .................................................................... 52 F. Trends in the Economic Security Domain ................................................................ 53 i. Risk from Unemployment ...................................................................................... 55 ii. Financial Risk from Illness ................................................................................... 59 iii. Risk from Single-Parent Poverty ......................................................................... 61 iv. Risk of Poverty in Old Age .................................................................................. 66 v. Weighting of the Components in the Index of Economic Security Domain ......... 69 vi. Trends in the Economic Security Domain ........................................................... 70 III. Sensitivity Analysis .................................................................................................... 71 A. Alternative 1: Consumption Weighted More Heavily than Wealth ......................... 72 3 i. Canada .................................................................................................................... 72 ii. Provinces ............................................................................................................... 73 B. Alternative 2: No Weight Given to Economic Equality ........................................... 75 i. Canada .................................................................................................................... 75 ii. Provinces ............................................................................................................... 76 C. Alternative 3: High Weights Given to Economic Equality and Security ................. 76 i. Canada .................................................................................................................... 77 ii. Provinces ............................................................................................................... 77 D. Overall Summary of Sensitivity Analysis ................................................................ 78 IV. Conclusion .................................................................................................................. 78 References ......................................................................................................................... 81 4 A Tepid Recovery: the Index of Economic Well- being for Canada and the Provinces, 1981-2014 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), which is a composite index based on a conceptual framework 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 methodological changes to the Index. The objective of this report is to present updated estimates of the IEWB for Canada and the provinces over the 1981 to 2014 period, with emphasis on the developments since 2008. The report outlines trends in the four domains of economic well-being that make up the Index – consumption, wealth, economic equality, and economic security. The report also offers an analysis of the sensitivity of our results to the subjective choice of weights assigned to the domains. The Index of Economic Well-being: Motivation and Conceptual Framework 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 reality. Second, an index of economic well-being should recognize that individuals differ in the relative weights they assign to the different domains of economic welfare. In order to be useful to all individuals independent of their value differences, an index of well-being ought to make value judgments as explicit and transparent as possible. For example, real GDP per capita is the most frequently cited indicator of economic well-being. However, GDP accounting omits consideration of many factors – leisure time, longevity of life, asset stock levels, income inequality, and so on – that are important to individuals’ economic welfare. In accordance with the conceptual framework developed by Osberg (1985), the IEWB is a composite index comprised of four domains of economic welfare: Per-capita consumption Per-capita wealth Economic equality Economic security. These four domains reflect economic well-being in both the present and the future, and account for both average access to economic
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