Measuring Economic and Social Performance

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Monitoring Italy Rome June 2009
Measuring Economic and Social Performance
A B Atkinson
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• SUBSTANTIVE ISSUES
• Welfare critique of Gross Domestic Product (GDP)
• 20 growth but stagnant living standards
• Impact of current recession
• KEY ROLE OF STATISTICS
• Clarifying social objectives
• Setting standards and resisting political
  pressure
• Monitoring progress
• PERSONAL EXPERIENCE
• EU Laeken indicators
• Measuring government output in national accounts
• Stiglitz Commission

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• Measuring performance
• Political arithmetick
• National income
• EU performance indicators
• Statistical challenges
• A principle-based approach
• Clarifying social objectives
• Monitoring change versus measuring levels
• What should be on the agenda?
• Grounding in economic theory
• Linking micro to macro
• More up-to-date monitoring

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Sir William Petty (estimate of UK national income
for 1662), author of Political Arithmetick Accordi
ng to Wikipedia, Pettys only statistical
technique is the use of simple averages. He would
not be a statistician by todays standards. To
obtain the population of all England he would
multiply the population of London by 8. Such a
simple use of estimation could have easily been
abused and Petty was accused more than once of
doctoring the figures for the Crown. Petty
himself describes his purpose to show what I
mean by Political Arithmetick and to show the
uses of knowing the true state of the people,
land, stock, trade etc. That the Kings subjects
are not in so bad a condition, as discontented
men would make them The observations that
men eat, drink and laugh as they used to, have
encouraged me to try if I could also comfort
others, being satisfied myself, that the interest
and affairs of England are in no deplorable
condition.
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UK
ITALY
First official national accounts
WORLD
Estimates of Angus Maddison
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• Why are national accounts one of the great social
  science success stories of the twentieth century?
• Concern to measure national progress. Founded in
  welfare economics that objective counterpart of
  economic welfare which economists call the
  national income (Pigou, Economics of Welfare).
• Providing empirical content to macro-economic
  concepts like the multiplier. Consistent set of
  flow data.
• BUT
• Uneasy marriage between welfare interpretation
  and accounting for macro-economic transactions.
• the theoretical interpretation of aggregate
  national income data has been sadly neglected
  (Samuelson, 1950).
• Standard critiques of GDP

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Explicit objectives 2000 Lisbon Agenda
The most competitive and dynamic knowledge-based
economy ... with more and better jobs and greater
social cohesion. Multi-dimensional Not purely
aggregative

• Growth
• Employment
• Social Inclusion
• Sustainability

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• Measuring performance
• Political arithmetick
• National income
• EU performance indicators
• Statistical challenges
• A principle-based approach
• Clarifying social objectives
• Monitoring change versus measuring levels
• What should be on the agenda?
• Grounding in economic theory
• Linking micro to macro
• More up-to-date monitoring

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Principles of indicator construction (Atkinson,
Cantillon, Marlier and Nolan, 2002)

• Principles for individual indicators
• Identify essence of problem and have clear
  normative interpretation.
• Be robust and statistically validated.
• Responsive to effective policy intervention but
  not subject to manipulation.
• Measurable in a comparable way across Member
  States.
• Timely.
• Measurement not impose too heavy a burden.
• Principles for indicator portfolio
• Balanced across different dimensions.
• Mutually consistent and proportionate weight.
• As transparent and accessible as possible to
  citizens.

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Principles for measuring government output and
productivity in the national accountsAtkinson
Review 2005

• A Government non-market output should, as far
  as possible, be measured following a procedure
  parallel to that adopted for market output.
• B Output should in principle be measured in a
  way that is adjusted for quality.
• C Account should be taken of the
  complementarity between public and private
  output.
• D Formal criteria should be established for
  extending direct output measures to further
  services.
• F Measures of inputs should be as comprehensive
  as possible, and should include capital services.
• H Independent corroborative evidence should be
  sought on government productivity, as part of a
  process of triangulation.
• I Explicit reference should be made to the
  margins of error surrounding national accounts
  estimates.

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Significance
Annual growth rate of GDP 1995-2003

• UK with direct output measurement 2¾
• UK if input measure used 3
• US with input measure 3¼

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Clarification of concepts - Outcomes, outputs
and inputs - Role of composite indicators -
Distributional adjustments -
Multidimensionality - Geographical coverage
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Primary Indicators Agreed by European Union at
Laeken December 2001 1. Percentage of
individuals living in households with low incomes
(below 60 of the national median equivalised
income) 2.  Persistent financial poverty 3.
 Depth of financial poverty 4. Ratio of income
of top 20 to that of bottom 20 5. Coefficient
of variation of regional employment rates   6.
Long-term unemployment rate   7. Percentage of
people living in jobless households   8. Early
school leavers not in further education/training
  9. Life expectancy at birth   10. Self
perceived health status by income level.
POVERTY
INEQUALITY
UNEMP- LOYMENT
HEALTH
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Distributionally adjusted household income Great
Britain
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• The health dimension virtues and dangers of
  lateral thinking
• Laeken indicators
• Life expectancy at birth mean variable
• Self perceived health status by income level
  cross-correlation (health inequity rather than
  health inequality)
• Measures of poor health
• Relative or absolute deprivation
• Weighting of very bad versus bad health

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International inequality reduced Convergence of
GDP per capita within the EU 1997-2007
(purchasing power parities, EU27 100)
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Monitoring change versus measuring levels

• Income versus material deprivation indicators
• Extent of transitory variation versus taste
  differences.
• Data sources and timeliness of data
• Consistency over time versus comparability across
  countries
• During the transition to EU-SILC, income-based
  indicators were calculated on the basis of
  available national sources Following the
  implementation of EU-SILC in a given country, the
  values of all income-based indicators cannot be
  compared to the estimates presented in previous
  years. This is why no trends for income-based
  indicators are presented in this years report
  (Joint Report on Social Protection and Social
  Inclusion 2009, Commission Staff Working
  Document, page 156).

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• Measuring performance
• Political arithmetick
• National income
• EU performance indicators
• Statistical challenges
• A principle-based approach
• Clarifying social objectives
• Monitoring change versus measuring levels
• What should be on the agenda?
• Rebuilding bridges to economic theory
• Linking micro to macro
• More up-to-date monitoring

A personal view
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• Rebuilding bridges to economic theory
• Individual valuation realisation versus
  accrual.
• Relative price effects
• Capabilities and non-welfarist welfare economics.

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• More up-to-date monitoring
• Use of administrative data
• Regular surveys (Eurobarometer)
• Labour force survey
• Current (approximate) income questions in
  EU-SILC
• Material deprivation indicators.

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From GDP to Household income The Blue Book
2007 Table 1.2 UK gross domestic product and
national income (2006 billion) A. Compensation
of employees 721 B. Mixed income 79 C.
Operating surplus gross 340 D. Capital
consumption 134 A/(ABC-D) 71.7 per cent

• TO A
• Add self employment income
• Add dividends and interest paid to UK households
  
• Add social security benefits
• Add occupational pensions, and other private
  transfers
• Subtract net compensation paid to non-UK
  households
• Subtract employers social contributions

Narrow concept
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It matters
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Conclusions

• Issues
• - important
• - urgent
• Statistics
• - set standards
• - clarify social objectives
• Need
• - Principled approach to performance indicators.
• - Relate macro aggregates to experience of
  individual households.
• - More up-to-date monitoring.