MEASURING ECONOMIC PROGRESS: Towards an alternative framework that combines wellbeing, time use and the impact of the digital economy

16 Apr 2019

At a time of growing public questioning of whether real GDP growth is an adequate measure of broad economic progress, new research advocates an experimental set of time and wellbeing accounts, with a particular focus on digitally driven shifts in behaviour.

 

In a study to be presented at the Royal Economic Society's annual conference at the University of Warwick in April 2019, Diane Coyle and Leonard Nakamura review a range of methods that could contribute to a new measure of economic wellbeing.

 

They also consider time use in production activities and the link to productivity. Their hope is that consideration of these alternative metrics can contribute to the development of a new consensus about measuring economic progress.

 

More…

 

What is meant by economic progress and how should it be measured? The conventional answer has been growth in real GDP over time or compared across countries, a monetary measure adjusted for the general rate of increase in prices.

 

But there is increasing interest in alternative measures of economic progress, particularly in the context of digitalisation of the economy and the consequent significant changes in production and household activity.

 

In an economy that is four-fifths services rather than goods, with time to consume therefore inherent in the majority of economic activity, the utility of the different uses of time seems key to understanding economic welfare as well as productivity.

 

These questions have become more urgent in a world in which, thanks to digitalisation, the boundaries between leisure, unpaid household contributions to economy activity and paid work have become more porous.

 

In particular, digital technology has prompted significant shifts in the allocation of time, particularly since 2007 with the arrival of smartphones and mobile broadband access. In the past decade, whole new business models, such as digital matching platforms and cloud computing, have emerged, in addition to the now-familiar extended supply chains in business enabled by information and communication technologies.

 

Automation is enabling some activities to be undertaken much faster in a range of process innovations, such as legal search, inventory management, financial transactions and rapid changes in manufacturing production runs.

 

This study discusses an alternative approach to measuring economic progress, combining time allocation over paid work, household work, leisure and consumption with measures of objective or subjective wellbeing while engaging in these different activities.

 

Developing this wider measure of economic welfare would require the collection of time use statistics as well as wellbeing data and direct survey evidence, such as the willingness to pay for leisure time.

 

The authors advocate an experimental set of time and wellbeing accounts, with a particular focus on digitally driven shifts in behaviour. They review a range of methods that could contribute to a new measure of economic wellbeing.

 

They also consider time use in production activities and the link to productivity. Their hope is that consideration of these alternative metrics can contribute to the development of a new consensus about measuring economic progress.

 

There is a series of unanswered questions about the linkages among measures of utility, consumption expenditures and time allocation to work and leisure; and about the measurement in monetary terms of the shadow value of time.

 

The unanswered questions relate to how different activities relate to overall evaluations of current wellbeing and to the link from these evaluations to money measures of work and consumption. Some of these questions may be answered by econometric studies, while others may be answered through survey methods.

 

There is therefore a rich research agenda concerning the meaning of self-reports on different methodologies, the utility derived from different activities at leisure and at work, the best approach to applying a money metric, and indeed the potential need for more than one dimension to measure economic welfare.

 

Why is this work important? If there is an increasing difference between the measure of progress supplied by GDP statistics and measures based on welfare, then it may be that a measure of welfare should become part of the system of national accounts.

 

Establishing this additional accounting may be crucial if economists are to be able to discuss economic policy issues meaningfully, in a context in which there is growing public questioning of whether real GDP growth is an adequate measure of broad economic progress.

 

Towards a Framework for Time Use, Welfare and Household-centric Economic Measurement by Diane Coyle (University of Cambridge) and Leonard Nakamura (Federal Reserve Bank of Philadelphia)

 

Diane Coyle

Economic Statistics Centre of Excellence | dc700@cam.ac.uk

Leonard Nakamura

Federal Reserve Bank of Philadelphia