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Multi-dimensional Living Standards: A Welfare Measure Based on Preferences

Listed author(s):
  • Romina Boarini

    (OECD)

  • Fabrice Murtin

    (OECD)

  • Paul Schreyer

    (OECD)

  • Marc Fleurbaey

    (Princeton University)

We compute a distribution-adjusted welfare measure that aggregates outcomes in three dimensions of well-being, namely income, employment and longevity. Aggregation weights reflect preferences of people on these dimensions. The welfare measure is calculated for 26 OECD countries and selected emerging economies, and covers about three decades. Relying on a single theoretical model of a hypothetical representative agent, we combine life satisfaction regressions to capture the full welfare losses of unemployment with a calibration approach to capture the value of longevity. We test for robustness of results over a series of datasets and specifications and find that the resulting estimated shadow prices of (one percentage point of) unemployment and one year of longevity average 2% and 6% of income respectively. While we assume an identical utility function for all individuals, shadow prices of unemployment and longevity vary both across countries and within countries across income groups. We find that economic growth differs significantly from the growth of our welfare measure. The latter grew faster than GDP thanks to the gains that countries experienced on longevity, but was also more volatile due to changes in unemployment. Rising income inequality exerts a negative effect on our welfare measure. Gains in longevity have almost the same impact on welfare as income growth, while the long-term impact of employment was smaller. Nous calculons une mesure de niveau de vie ajustée pour le degré d’inégalité et agrégeant le revenu, l’emploi et l’espérance de vie. Les poids associés à ces dimensions reflètent les préférences des populations. Cette mesure de niveau de vie qui couvre trois décennies est calculée pour 26 pays de l’OCDE et une sélection de pays émergeants. En nous basant sur un modèle théorique unique d’un agent représentatif hypothétique, nous combinons des régressions de satisfaction envers la vie pour capter le coût social du chômage avec une approche de calibration pour rendre compte de la valeur monétaire de la longévité. Nous testons la robustesse des résultats à l’aide d’un ensemble de bases de données et de spécifications différentes, et nous trouvons que les prix fictifs estimés d’un point de pourcentage de chômage et d’une année d’espérance de vie sont en moyenne respectivement égaux à 2% et 6% du revenu des ménages. Alors qu’une fonction d’utilité unique est utilisée pour tous les individus, les prix fictifs du chômage et de l’espérance de vie varient à la fois entre pays et entre groupes de revenu à l’intérieur des pays. Nous montrons que la croissance économique diffère significativement de la croissance de notre mesure de niveau de vie. Celle-ci a crû plus vite que le PIB en vertu des gains d’espérance de vie, mais a été également plus volatile à cause des variations du taux de chômage. L’augmentation des inégalités de revenu a exercé un effet négatif sur notre mesure de niveau de vie. Les gains d’espérance de vie ont eu pratiquement le même impact sur le niveau de vie que la croissance économique, alors que l’impact de long-terme de l’emploi a été plus faible.

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File URL: http://dx.doi.org/10.1787/5jlpq7qvxc6f-en
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Paper provided by OECD Publishing in its series OECD Statistics Working Papers with number 2016/5.

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Date of creation: 11 Oct 2016
Handle: RePEc:oec:stdaaa:2016/5-en
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