Indicators of inclusive growth to complement GDP growth e-frame conference 11/02/2014  material by Paul Minty and Bartek Lessaer

The need for inclusive growth OXFAM(2014): 85 richest people in world own same as poorest half of population President Obama, Dec. 2013: growing inequality and lack of upward mobility “the defining challenge of our time” => Need to focus on inclusive nature of growth, not just growth itself

 GDP ignores how benefits of growth distributed  Which measures?  Dashboard of indicators needed  to inform on distributional aspects, e.g.  Growth in real median income (total population + top & bottom quintiles)  Adjusted growth in real GDP per capita (Sen index)  Overall life satisfaction + associated gaps

Importance of use of data on household sector Stiglitz et al: material living standards better monitored through measures of household income and... GDP does not sufficiently capture changes in material well-being of households

Real growth in median disposable income and GDP/cap can differ markedly what people actually receive out of national income  more focus on inclusive growth easy to communicate  lack of strong link GDP/cap & median income  monitor median income to gauge inclusiveness of growth

Click to edit the outline text format  Second Outline Level Third Outline Level  Fourth Outline Level Fifth Outline Level Sixth Outline Level Seventh Outline Level Eighth Outline Level  Ninth Outline LevelClick to edit Master text styles  Second level Third level  Fourth level » Fifth level G rowth in (median) income can vary substantially across quintiles  monitor income developments within different parts of income distribution  (esp. lowest income quintile)

Real annual growth in (median) income clarifies real situation people face

Distributional adjustment of GDP/capita can strongly modify growth outcomes Adjust GDP/capita to take account of distributional issues Sen index: (1-Gini)  penalises countries w high inequalities (GDP/Cap ↓)

If ethics were not enough to stand up against social injustice there are: economic and social reasons too

What are the consequences of inequality on economic performance? High and rising inequality can undermine sustainable growth by  inducing insufficient demand + unsustainable borrowing at lower end of income distribution  amplifying risk of crisis or making it difficult for poor to invest in education -> lowers growth potential Key driver of duration of growth spells  longer growth spells associated with more equality in income distribution (Berg & Ostry, 2011)

Considerable variation between top and bottom quintiles of life satisfaction  Gap varies considerably among MS  largest in CEEC but also AT, DE and UK (even though average high)  smallest gaps in Benelux and Nordic MS

*A German saying  Income position important element in life satisfaction in most MS  more so in CEEC + DE, EL, PT & UK Money does not make you happy but it calms your nerves*

Happiness is a beautiful thing but it won't buy you money*  Strongest predictor: being deprived of at least two essential consumer items - 2/3 among those with low life satisfaction vs all others only 1/3  Also being in arrears and poor quality housing * from a Czech song but a Slovak singer

The UN post-2015 agenda  Various international organisations have voiced preferences, e.g. UN: reduce by 1/2 share of households with incomes below half of national median World Bank: track income growth among bottom 40 % of distribution OECD: Initiative for inclusive growth  EU: framework should cover basic living standards + ensure benefits of growth and employment widely shared

Social risks of inequality  damaging effect on social trust and civic involvement critical for functioning of societies cooperative behaviours, investment in education quality of institutions  potentially: higher criminality, social anxiety, lower subjective well-being Gap Between Rich And Poor Named 8th Wonder Of The World => Gap Between Rich And Poor Named 8th Wonder Of The World

Thank you Cf. ESDE 2013 chapter 7 by Paul Minty and Bartek Lessaer The problem of averages: When you've got your head in the fridge and your feet in the oven, you're – on average - very comfortable