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Upside of Inequality Oxford Unintended Consequences

AI Summary. Western European living standards are 67% of the US level measured by income but 85% when broader welfare measures are included. In France, consumption per person is 60% of the US level, but longer life expectancy, more leisure, and lower consumption inequality each add roughly 10 percentage points to estimated welfare.

Charles Jones American Economic Review
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Western European living standards are 67% of the US by income measure, but 85% when considering broader welfare metrics, according to @CharlesJones in the American Economic Review.

Do broader welfare measures narrow the European-US living standards gap?

Core argument: Western European living standards measure 67% of the US level by income but rise to 85% when broader welfare metrics are included.

Average Western European living standards are 67% of the US when measured by income, but this figure rises to 85% when considering broader welfare metrics. In France, GDP per capita is 67% of the US, and consumption per person is 60% of the US level. However, France benefits from a higher life expectancy (80 years vs. 77 in the US), more leisure (535 hours vs. 877 hours worked per person in the US), and lower inequality (standard deviation of log consumption is 0.42 in France vs. 0.54 in the US). These factors contribute roughly 10 percentage points each to France's welfare in terms of equivalent consumption. Thus, when accounting for these additional dimensions, Western European living standards appear much closer to those in the US, highlighting the importance of considering factors beyond GDP in assessing economic well-being.

Takeaways by Macro Roundup® AI

  1. Western European living standards measure 67% of the US level by income but rise to 85% when broader welfare metrics are included.
  2. France's GDP per capita is 67% of the US level and consumption per person 60%, while life expectancy is 80 years versus 77 in the US and hours worked are 535 per person versus 877.
  3. Higher life expectancy, more leisure, and lower consumption inequality (standard deviation of log consumption of 0.42 in France versus 0.54 in the US) each add roughly 10 percentage points to French welfare measured in equivalent consumption.

Charles Jones and Peter Klenow, “Beyond GDP? Welfare Across Countries And Time,” American Economic Review, 2016, http://klenow.com/Jones_Klenow.pdf

“…..As an example, suppose we wish to compare living standards in France and the United States. GDP per person is markedly lower in France: France had a per capita GDP in 2005 equal to just 67 percent of the US value. Consumption per person in France was even lower—only 60 percent of the United States, even adding government consumption to private consumption. However, other indicators looked better in France. Life expectancy at birth was around 80 years in France versus 77 years in the United States. Leisure was higher in France: Americans worked 877 hours (per person, not per worker) versus only 535 hours for the French. Inequality was substantially lower in France: the standard deviation of log consumption was around 0.54 in the United States but only 0.42 in France. Our welfare metric combines each of these factors with the level of consumption using an expected utility framework.We do this in two ways. First, we use detailed micro data from household surveys for 13 countries to provide a measure of welfare with as few assumptions as possible. Then, we use publicly available multi-country datasets to construct cruder welfare measures for 152 countries. Cross-checking these “macro” results with the detailed “micro” results suggests that there is valuable information even using the coarse multi-country datasets. Our consumption-equivalent measure aims to answer questions such as: what proportion of consumption in the United States, given the US values of leisure, mortality, and inequality, would deliver the same expected utility as the values in France?In our results, lower mortality, lower inequality, and higher leisure each add roughly 10 percentage points to French welfare in terms of equivalent consumption. Rather than looking like 60 percent of the US value, as it does based solely on consumption, France ends up with consumption-equivalent welfare equal to 92 percent of that in the United States…Average Western European living standards appear much closer to those in the United States(around 85 percent for welfare versus 67 percent for income)when we take into account Europe’s longer life expectancy, additional leisure time, and lower inequality…”

Charles Jones effort to make cross country comparisons of living standards mentioned by Pew. Includes strong assumptions about value of leisure time and doesn’t control for compositional effects driving down life expectancy in US (ie black population) but if you look at his welfare measure US still looks okay, average Western European living standards 67% by income measure, 85% by his welfare measure.

Ed Comment:I view these nonpecuniary measures as highly subjective opinions to justify the failure of Europe.I'm looking for measures about how much we spend helping the poor vs France and Germany. The peterson Institute has a good study that accounts for taxes and tax breaks. It also adds public and private spending. it show we spend 28% of GDP second only to France at 31%. But given our economy is 2/3s larger per capita, we spend significant more dollars-wise per recipient. We have more poor relatively, but if you mean Europe by us standards, Germany and France have the same share of less than middle-class families. They just don't view them as poor. The study however doesn't separate pensions, poverty spending, and care for everyone else. I want to compare our poor to theirs. I'm confident ours are richer albeit dumber, so they do dumb stuff, like get addicted to opioids and get fat/type 2 diabetes. Perhaps the guy has expanded his analysis over time although I'm doubtful. My impression from what I've seen is Germany and france give the poor and pensioners, the same or less than we do dollars-wise per recipient. They are poorer than us so they can't afford to give them more. I also want to find the (unadjusted) black/minoity/immigrant vs white pay gap in Europe vs the US. My impression is it's the same--about 20 to 25%. In America, black files earn less but they also work less. The same is true in Europe where the unemployment is higher (I'd like to see that too).

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