Measuring Economic Welfare: What and How?

Policy Papers, May 18, 2020

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Calls for a more people-focused approach to statistics on economic performance, and concerns about inequality, environmental impacts, and effects of digitalization have put welfare at the top of the measurement agenda.
The paper argues that economic welfare is a narrower concept than well-being.
The new focus implies a need to prioritize filling data gaps involving the economic welfare indicators of the System of National Accounts 2008 (SNA) and improving their quality, including the quality of the consumption price indexes.
Development of distributional indicators of income, consumption, and wealth should also be a priority.
Definitions and assumptions can have big effects on these indicators and should be documented.
Concerns have arisen over potentially overlooked welfare growth from the emergence of the digital economy. The paper concludes that the concern that free online platforms are missing from nominal GDP is incorrect.
Many of the welfare effects of digitalization require complementary indicators, either because they are conceptually outside the boundary of GDP or impossible to quantify without making uncertain assumptions.

Economic welfare is conceptually narrower than well-being, implying measurement focus should be on SNA-consistent economic welfare indicators.
Quality improvements are needed for consumption price indexes and other SNA economic welfare indicators.
Distributional indicators for income, consumption, and wealth are essential to capture inequality-related aspects of welfare.
Definitions and assumptions materially affect welfare indicators and must be transparently documented.
Free online platforms are not omitted from nominal GDP; however, several welfare effects of digitalization are not captured by GDP and require complementary measurement approaches.

Prioritize filling data gaps in SNA 2008 economic welfare indicators.
Improve the quality of consumption price indexes.
Develop and expand distributional indicators of income, consumption, and wealth.
Document definitions and assumptions used in constructing welfare and distributional indicators to ensure transparency and comparability.
Construct complementary indicators for welfare effects of digitalization that lie outside the GDP boundary or are impossible to quantify without uncertain assumptions.