Social Indicators

This article was prepared by Helen Owens of the Institute research staff.
Until the mid-1960's it was generally accepted that gross national product provided not only a measure of economic performance but also a useful overall indicator of some aspects of human welfare. The limitations of GNP with respect to most non-market phenomena were well recognised but the implicit assumption was made that the unmeasured aspects of welfare were positively related to changes in income as recorded in national accounts statistics. However, in the last decade or so, growing recognition of social costs and problems asociated with material advancement has led economists and other social scientists to look for new approaches to the measurement of social 'progress'.¹     

THE MEASUREMENT OF TERMS OF TRADE EFFECTS

The change in goods and services available in a national economy brought about by the shifting of external price relationships is referred to as the terms of trade effects. This paper reviews the various methods which have been devised since the war to define and quantify such effects on the Gross National Product. The statistical annex shows that, as far as OECD countries are concerned, the differences between the various measures are not significant. Whereas the effects from terms of trade represented, on average, less than one half of one percent of the GNP of OECD countries during the 1960's the percentage has increased substantially since 1973, due most importantly to the increase in the oil price; by 1977 (on a 1970 price basis), it had reached 5 percent of GNP in Japan and up to 6 percent in Italy. On the other hand, the extreme case of Saudi Arabia where various formulas generate effects amounting to between one half and the whole of GNP, indicates that the measurement of terms of trade effects by various methods may give different results.     

DISTRIBUTION OF ECONOMIC RESOURCES: IMPLICATIONS OF INCLUDING HOUSEHOLD PRODUCTION

The value of household production is estimated to 40–50 percent of GNP in most western countries, and because the distribution of this income-in-kind is different from ordinary income distribution, the concept of economic well-being may include household production. The monetary value of household production is evaluated by a market alternative principle and an opportunity-cost principle. In the last case a reservation wage is estimated, and integrated in a modified opportunity principle, which means that household work of non-working women is evaluated by the reservation wage, and household work of working women and men by their wage-rate. The conclusions are among others, that the inclusion of household production reduces the inequality, and that the women's contributions—money income and household production—functions as income equalizers.     

Intra-Industry specialization: A cross-country analysis

This paper tests various hypotheses as to the determinants of intra-industry trade in thirty-eight developed and developing countries exporting manufactured goods. The econometric estimates for the entire group of countries show that the extent of intra-industry trade increases with the level of economic development (GNP per head), the size of domestic markets (GNP), and the openness of national economies. The existence of trading partners with common borders and geographical proximity further contributes to intra-industry trade.These hypotheses have also been confirmed for the developing country group. And while similarities in regard to trade orientation and the existence of border trade, as well as intercorrelation between the gross national product and per capita GNP, have reduced the statistical significance of the regression coefficients for these variables for the developed country group, this equation also has a high explanatory power.     

IS MONEY THE MEASURE OF WELFARE IN RUSSIA?

The transformation of a non-market to a market economy ought to change fundamentally the significance of money incomes for welfare. Whereas in a stressful non-market economy such as the former Soviet Union, non-monetized resources could substitute for money income and promote welfare, in a modern market economy money income should be a good proxy for household welfare. This article tests the extent to which Russians are now in a modern market economy by analyzing data from nationwide Russian surveys in January, 1992, and April, 1994. Modern influences are increasingly important as a determinant of the distribution of money incomes, but not as an influence upon household welfare. The "randomness" of temporary disruptions of welfare is in accord with Rawlsian principles of equity.     

TOWARDS A DEFINITION OF NON-MARKET ACTIVITIES*

Recent attempts to measure value of household work and other non-market activities have been based on a simplistic interpretation of Opportunity Cost of Time Theory; this paper attempts to refine this and develop practical definitions from basic Utility Theory. First a distinction is made between economic and other activities, the former being the only ones subject to dollar-measurement; we recognize economic activities can occur outside the market and focus our analysis upon these latter. In the framework of Becker-Lancaster a Household-Production Function is posited which produces jointly such non-market economic activities-called indirect utility-and welfare or satisfaction- called utility. A criterion for identifying the indirect utility activities (Third-Person Criterion) is outlined, and related to time-use survey data. Finally, four practical estimation methods are outlined: simple opportunity cost of time; gross replacement cost; individual function replacement cost; and the full production function approach. This latter, which includes evaluation of capital contributions, is deemed theoretically most valid but for present purposes least practical because of lack of data on domestic capital stock. The paper concludes that there exists both a theoretical basis for valuing non-market activities, and the necessary data to apply the formulas developed.     

Hidden in Plain Sight: Unpaid Household Services and the Politics of GDP Measurement

ABSTRACT

Gross domestic product (GDP) is one of the world’s most influential and widely cited economic indicators. However, outside of the industrialised, market-based context in which the indicator was first designed, GDP measurement suffers from a number of biases and blind spots. The article zooms in on one of these: the exclusion of unpaid household services from the production boundary of the System of National Accounts, the international standard underpinning GDP methodology. While GDP has expanded over time to include activities as diverse as financial services and the informal sector, the treatment of unpaid household services has remained unchanged. Why is this? I find that staff in the statistical departments of international organisations such the United Nations, International Monetary Fund and World Bank have a tremendous degree of agency in the governance of GDP. While these statisticians are aware of and engage with criticisms, they reject the inclusion of unpaid household services based on shared professional norms and economic ideas.     

A COMPARATIVE ANALYSIS OF HOUSEHOLD CONSUMPTION FINANCED BY INDIVIDUAL AND COLLECTIVE RESOURCES, IN FRANCE AND ITALY (1959, 1965, 1969)

In this article the authors anticipate some results of a study carried out in France and in Italy, in the framework of a wider research project aiming at analysing in some depth and at comparing the recent trends and patterns of total household consumption in some capitalist and socialist countries. ¹
The accounting scheme used to arrive at a comprehensive definition of household consumption, inclusive of the "non-market" divisible services produced by public administrations, and to identify the share of this new aggregate which is financed by collective resources, isoutlined in the first section. In the second section, the article shows the growing relative importance of publicly-supported consumption, but it also shows that during the sixties, the overall cost of divisible public services and of social benefits provided in kind or in cash was, in both countries, almost entirely auto-financed by the household sector, via social security contributions and taxes levied on that sector's income and consumption. In the third section, comparative analysis of the recent structural evolution of the "market" and the "non-market" shares of total household consumption points out the similarities and dissimilarities between the patterns and forms of private and public spending in the two countries.
The results of this analysis seem to support the thesis that unless a better integration of social policies with economic growth policies is achieved, it will not be possible to implement rational choices between the "market" and the "non-market" ways of satisfying specific population needs. The authors' conclusion is that under present circumstances, public civil expenditures will continue to rise, both in France and in Italy, more rapidly than total national resources and it will become difficult to balance total receipts and total outlays of the public sector.     

AN EXAMINATION OF THE FEASIBILITY OF USING MONETARY DATA FOR NATIONAL INCOME ESTIMATES

In a number of underdeveloped countries today, adequate statistics for estimating national output by traditional national accounting methods are unavailable or unreliable. However, many of these same countries do publish data on monetary variables at an early stage in their development. These data can now be used to estimate national income.
In this study the money supply was defined to include all currency in circulation, private deposits subject to check at all banks and postal systems, all government deposits, and unused overdrafts less float. The national accounts data were taken from United Nations sources and data supplied by various foreign statistical offices. To make the accounts more comparable in terms of coverage and to limit reported income to the monetized sector of the economy, non-monetary imputations were deleted.
The monetary and national accounts data were combined in a multiple, stepwise regression. National income was used as the dependent variable and money supply and other data were used as the independent variables. The final estimating equations explained about 96 per cent of the variation in income between countries. Other tests were conducted using the currency ratio, transactions velocity, population, and per capita consumption. However, these variables did not augment the explanatory power of the regression equations.
When the equations were used to estimate national income for twenty-two under-developed countries, the derived estimates showed a high degree of concordance with reported income where it existed for comparative purposes. The results indicate that monetary data can be used to estimate national income for underdeveloped countries with a relatively high degree of accuracy, between countries, and from year to year within a country.     

Poverty Mapping with Aggregate Census Data: What is the Loss in Precision?

Spatially disaggregated maps of the incidence of poverty can be constructed by combining household survey data and census data. In some countries (notably China and India), national statistics agencies are reluctant, for reasons of confidentiality, to release household‐level census data, but they are generally more willing to release aggregated census data, such as village‐ or district‐level means. This paper examines the loss in precision associated with using aggregated census data instead of household‐level data to generate poverty estimates. The authors show analytically that using aggregated census data will result in poverty rates that are biased downward (upward) if the rate is below (above) 50%, and that the bias approaches zero as the poverty rate approaches zero, 50%, and 100%. Using data from Vietnam, it is found that the mean absolute error in estimating district‐level poverty rates is 2.5 percentage points if the census data are aggregated to the enumeration‐area level means, and 3–4 percentage points if the data are aggregated to commune or district level. Finally, the authors propose a method for reducing the error using variances calculated from the census. When this approach is applied to the Vietnam data, this method can cut the size of the aggregation errors by around 75%.     

Aid and the growth of income in aid-favoured developing countries: policy issues

This paper opens by expressing disappointment in the disparities between published estimations of the effectiveness of foreign aid to developing countries and effectiveness data which arise from the application of complex econometric methods. The new dilemmas for aid policy include the fact that aid increasingly devoted to human development at the expense of productive activity is unlikely to create the material development which will allow maintenance of human development targets. The second part of the paper presents comparative statistics on gross national product, official development assistance, and savings growth which paint a disturbing picture because the growth of domestic savings has been negative in the period 1967-87 in nine of the 11 less developed countries with data available. Section 3 covers the shortcomings of econometric experiments which neither confirm nor deny the findings of other studies on the effectiveness of aid. The fourth section describes constraints to the growth of income imposed by the foreign exchange, the rate of return on investment, and the growth of labor productivity and presents statistical evidence supporting aid policy which would 1) take advantage of opportunities to rehabilitate output growth in traditional industries without the addition of a great deal of capital, 2) direct attention to increasing the absolute gross national product (GNP) to raise the growth of per capital income, and 3) strategically reorient the structure of aid to increase the absolute GNP faster to accelerate reversal of the negative savings pattern and speed the reduction of fertility. Section 5 considers suggested shifts in aid policy orientation dealing with 1) population growth, income level, and food security; 2) reconstruction and structural adjustment; 3) rationalizing aid for social, institutional, and human development and technical assistance. The concluding section notes that the suggested strategic reorientation of the structure of aid should result in reduced population growth.     

IS U.S. GROWTH UNDERSTATED BECAUSE OF THE UNDERGROUND ECONOMY? EMPLOYMENT RATIOS SUGGEST NOT

Has the underground economy caused the increase in United States GNP in recent years to be understated relative to earlier periods? The ratio of employment to population provides powerful evidence that it has not. This ratio’ was as high in the middle 1970s as in previous periods and in 1978–80 rose to its highest level of the postwar era, suggesting that employment growth has not been understated. Employment series based on both establishment reports and household surveys yield exceptionally high ratios in recent years. This article provides a step-by-step explanation of why employment data are pertinent to the question raised about GNP. This explanation may be summarized as follows. GNP measured as the sum of final products is not understated unless GNP measured as the sum of national income and other charges against GNP is also understated. Appreciable understatement of the growth of charges against GNP as a result of growth of the underground economy is highly unlikely in the absence of understatement of the growth of wages and salaries, because of the way the estimates are made. Understatement of the growth of wages and salaries without understatement of the growth of employment based on establishment reports is highly unlikely because of the way data are collected. The article explains briefly the relationship between income tax evasion and errors in measuring the various components of charges against GNP. It also explains how illegal activities are meant to be handled in GNP measurement.     

PUSHING THE SISYPHEAN BOULDER? MACROECONOMETRIC TESTING IN LATIN AMERICAN COUNTRIES

What are the implications of the historically observed economic policy instability in Latin American countries (LACs) for macroeconometric testing? Two pressing restrictions on the econometrician using time-series of LACs arise: time-varying parameters and time-varying specifications. Such an instability also has profound impacts on time-series measurements of national accounts at constant prices. This, together with the “second best methodology” used in LACs for computing real GNP, implies that LACs figures on GNP growth reflect growth in gross production rather than in value added. LACs time-series for private consumption are unreliable. Crucial data set constraints in LACs further complicate the task for the econometrician.     

Industry Wages Across Countries and Over Time: A New Database of Micro Survey Data

This paper presents a newly collected database on industry wages. The underlying data are micro datasets collected through nationally representative household surveys which are mostly conducted by national statistical agencies. In comparison with wage measures based on macroeconomic data sources, we find that industry wages based on micro survey data are more reliable. Furthermore, data from nationally representative micro surveys are becoming increasingly available, thus allowing for better coverage, especially of low‐income countries. The database provides a reliable source of data for research on inter‐industry wage structures and gender wage differentials, across countries and over time. It may also serve as a basis for further research on the determinants and implications of inter‐industry and gender wage variations.     

LE SYSTEME ACTUEL DE COMPTABILITE NATIONALE ET LA PLANIFICATION

The present system of national accounting (revised SNA and existing national systems) is a good framework for physical projections of goods and services produced by enterprises. It is less well suited to planning in value terms, because data on income are poor and the system is badly adapted to analysis at the level of decision-making centers of the relationships of production, prices, income, and investment; the picture which it gives of the non-market economy is inadequate; and it yields a static view of successive states of the economy, the last accented by the scarcity of structural information. The usefulness of the accounts for the formation of economic policy varies greatly according to the problems considered. Important for general aspects of economic policy in the relatively short term, they are limited in terms of fine decisions on public intervention in the market economy, and for the relatively detailed study of economic policy in the public sector itself. These shortcomings, although in part remediable, raise questions concerning the scope, object, flexibility, and spacial and temporal coverage of national accounting. Finally, the newly emerging needs of planning, especially those arising from the extension of the dialogue between social groups, the attempts at planning in value terms, and the increasing interest in the non-market economy, suggest a need for some deconsolidation of the system. To answer these demands, a more flexible system is needed. Such a system might comprise two stages. One, a statistical framework and presentation of data, would remain close to business and public accounting. The other, a more abstract and elaborate framework for macro-economic analysis, would correspond in large part to the present system. This system would include, around the central nucleus, a number of satellite accounts, consistent with the nucleus but articulated with it by very flexible and diverse rules. It could be extended to new fields where quantification without valuation is possible.     

HOUSEHOLDS' NON-SNA PRODUCTION: LABOUR TIME, VALUE OF LABOUR AND OF PRODUCT, AND CONTRIBUTION TO EXTENDED PRIVATE CONSUMPTION

This paper first shows, with data from fourteen countries, the potential of time-use studies for measuring, in comparable physical quantities, labour inputs in SNA and in non-SNA production. It then presents the monetary valuations of unpaid household labour and of households' non-market product achieved on the basis of time-use data in a few of these countries. Further elaboration of these valuations illustrates the contribution of households' non-SNA production to extended private consumption. The conclusion suggests desirable future developments.     

THE MEASUREMENT OF GROSS NATIONAL PRODUCT IN KOREA

South Korea began its measurement of Gross National Product during the turbulent 1950's, a period of postwar rebuilding and of political and social changes. With only a small and largely inexperienced staff, and with little support from other statistical agencies whose data were essential to adequate GNP measurement, the Bank of Korea began this task in the early 1950's. Early estimates were extremely rough; over the years, the statistical staff was trained and other statistical agencies were upgraded. Measurements of output in the large agricultural sector and in manufacturing have gradually but consistently been strengthened as recent input-output data has been developed. Gaps still persist, particularly in the wholesale and retail sectors, but certain strengths are present: an outstanding job has been done in product pricing. The author describes the evolution of Korea's improving GNP program, presents its sources of data and its methodologies, and gives an assessment of problems of the past and prospects for the future.     

Economic-demographic interactions and the impact of investments in population control

The interaction between economic and demographic factors in the Philippines was examined, analyzing the effects of investment in fertility control on the birthrate, population size, and such economic variables as gross national product (GNP), wage rate, and family income. A family planning model that was constructed and is used to project population program cost and births prevented is grafted to and simulated with a larger economic/demographic model. The simulation results are anayzed. The economic demographic model to which the family planning subsystem was grafted is a modified version of the model constructed by Encarnacion et al. (1974). It is basically a neoclassical model, a closed economy in which the real wage rate is determined by the intersection of the demand and supply of labor. The demand for labor is derived from a Cobb-Douglas production function on the assumption that labor is paid the value of its margin product, and the labor supply is determined by age and sex specific labor force participation rates and population. Capital accumulation is influenced by population size through its effect on government and private consumption expe nditures. Fertility rate is determined by duration of marriage and the level and distribution of family incomes. The model was used to develop projections from 1970 through 2000. Results show that the effects on per capital income and real wage rate seem significant, yet family income appears largely unaffected and the effect on the traditional investment to output ratio (I/Y) seems minimal. One of the outcomes of the projection without family planning is that, if the economy were to depend solely on its own savings, the average annual rate of growth of gross national product (GNP) would be only about 4.32%, which is less than the historical growth rate of 6% and the present government longterm target of 8%. The result suggests that foreign investments and loans would have to play an increasingly important role in the economic growth of the Philippines unless the gross domestic investment of GNP ratio is increased substantially. Aggregate output is reduced due to a relatively smaller labor force. Thus, it is suggested that if population control programs are accompanied by an increase in the labor participation rate, particularly of women, the payoffs from family planning may be larger. Closer examination of the nature of the payoffs from the family planning program would reveal that they basically stem from the decrease in the number of persons sharing in national output and not from increased production and saving. The observation suggests that population control does not necessarily lead to more rapid economic growth defined as sustained increase in total output.     

Old and new problems in the estimation of national accounts in transiton economies1

The paper discusses the measurement and interpretation of real GDP in transition economies. It argues that the statistical offices in Eastern Europe, the Baltics and the CIS should place emphasis in the years ahead on improving the mechanism by which estimates of output, consumption, investment and foreign trade are balanced to ensure compliance with standard accounting identities. Improvements to this ‘balancing mechanism’may substantially strengthen the reliability of national accounts data and would not necessarily require a major further financial outlay for the statistical offices. In its discussion of the interpretation of real GDP data, the paper demonstrates that the use of the measured change in output at constant prices as a proxy for the evolution of ‘social welfare’may be particularly problematic in the context of transition economies.