Outline Goodwin Ch 6 Macroeconomic Measurement Section 3. Measuring Household Production Section 4. Measuring Economic Well-Being Goodwin Ch 5 Current Approach to Macroeconomic Measurement
Measuring Household Production Significantly omitted in the calculation of national income activities like housecleaning, laundry, childcare, meal preparation etc. (domestic female labour!! ) Why? households are unproductive hard to distinguish household production from consumption third person criteria GDP measures market production non-market prod n Including household production would make too big of a change in the accounts countercyclicality!
Measuring Household Production Time-use surveys: might help to find out the time spent in unpaid productive activities. Also: shows the different patterns of time-allocation associated with gender, thus serves to highlight roles and conditions of women and men in family and social life TR Time-use Surveys do have a short history and the results were yet not utilized for valuation or policy purposes. Year 2006, survey with 5070 households, 11.815 individuals over the age of 15
Measuring Household Production Graph 1. Average time spend on activity by gender (Hour) Sleep Employment and job seeking Eating and personal care Mass media Social Life and entertainment Travel and unspecified time use Household and family care Volunteer work and meetings Hobbies and games Education Sports 10 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 Male Female
Measuring Household Production Table 1. The average time used on activity by type of activity and gender and employment status (hour) Activity Total Working Not working Total Male Female Total Male Female Total Male Female Eating and personal care 02:42 02:45 02:38 02:40 02:42 02:34 02:43 02:52 02:40 Employment and job seeking 02:47 04:27 01:08 05:39 06:08 04:19 00:02 00:07 00:00 Study (education) 00:22 00:24 00:20 00:05 00:05 00:06 00:38 01:14 00:25 Household and family care 03:05 00:51 05:17 01:37 00:43 04:03 04:29 01:12 05:43 Volunteer work and meetings 00:46 00:37 00:54 00:30 00:29 00:31 01:00 00:57 01:02 Social life and entertainment 01:54 01:50 01:57 01:32 01:33 01:30 02:14 02:35 02:07 Sports 00:07 00:10 00:04 00:05 00:06 00:02 00:08 00:19 00:04 Hobbies and games 00:15 00:25 00:05 00:15 00:19 00:04 00:14 00:38 00:06 Mass media 02:14 02:20 02:07 01:53 02:00 01:34 02:33 03:12 02:18 Travel and unspecified time use 01:18 01:43 00:55 01:35 01:45 01:09 01:02 01:36 00:49 Sleep 08:32 08:27 08:36 08:08 08:08 08:07 08:55 09:18 08:46 Total 24:00 24:00 24:00 24:00 24:00 24:00 24:00 24:00 24:00
Measuring Household Production Methods of valuing household production need to impute. Need to assign the monetary value to the time use - Replacement cost method: hours spent are valued at what level would it cost to pay someone else to do the same job. - Opportunity cost method: wage rate the person would have earned in the market at a paid job is valued. Neither method is perfect BUT better than nothing!
Measuring Economic Well-Being Remember the goal! well-being of the individuals Output cannot be the measure for human well-being - Well-being reducing products: drugs, unhealthy food - Well-being reducing production methods: unpleasant working conditions - Defensive expenditures: armaments - Loss of leisure: overwork makes you tired :D - Unequal distribution: prevalence of poverty
Measuring Economic Well-Being Genuine Progress Indicator (GPI) Personal Consumption Expenditure (corrected for inequality) + benefits (estimates of unpaid work and services of durables and public roads!) social costs+ environment costs + net capital investment foreign borrowing - cost of durables
Measuring Economic Well-Being Human Development Index (HDI) used by UNDP Capability Approach Amartya Sen Life expectancy at birth, adult literacy and secondary education enrolment rates, GDP per capita Annually published in Human Development Report Human welfare on the basis of not only how much is produced but also what is produced and how it is distributed Country rankings wrt GDP and HDI may differ!
Measuring Economic Well-Being Human Development Index (HDI) used by UNDP 2014 report entitled Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience http://hdr.undp.org/en/content/humandevelopment-report-2014 Grouping of countries (very high,high,medium,low) TR used to be in medium, now in high HD group HDI rank 69 (out of 187), progress since 2008 (+16 in HDI rank) Inequality adjusted HDI TR (Rank:69 / -3); US (Rank:5/-23); Korea (Rank:15/- 20); Chile (Rank:41/-16)
Measuring Economic Well-Being Human Development Index (HDI) used by UNDP Gender Inequality Index - inequality in achievements between women and men in three dimensions: reproductive health (maternal mortality, fertility, antenatal visit etc.), empowerment (seats in parliament, education) and the labour market (LFPR) Country HDI Rank GII Rank IHIDI Rank Sweden 12 4 9 UK 14 35 18 Turkey 69 69 72 Qatar 31 113.. Croatia 47 33 49
Macroeconomic Measurement Accounting for outsiders : household production and economic well-being Need aggregate measures for making economic policy choices at the national level. Use of sectors households/institutions (personal), business, government and foreign Remember: different types of capital (human, social, natural, manufactured) only manufactured is included in national accounting fixed assets, inventories, durables
Gross Domestic Product Total value of final goods and services newly produced in the country over a specified period of time (1 year) Final goods avoid double counting Domestic within the borders of the country Value of production = value of spending = value of income Production sum up value of all final goods and services produced in each sector Spending sum up value of spending by all sectors Income sum up compensation received by all involved in production and services.
Calculating its Value Three Approaches Product Approach Rather than looking at the final sale, utilize a value-added approach Q: how much each industry contributes the the value of the final good or service? Start from the raw material and see how much market value is added at each stage Value of sold value of intermediate inputs used Value added at each stage must sum up to the final value of the final product Input-Output tables
Calculating its Value Three Approaches Use of imputation to estimate the value of some components Esp. Government production is imputed by summing up the payments to workers, payments for intermediate goods and services, allowance for depreciation of assets What about household production for own use? Not counted at all! GDP = Business production + household and institutions production + government production
Calculating its Value Three Approaches Spending Approach adding up the value of newly produced goods and services bought by the sectors Personal consumption expenditures spending by households and institutions Gross private domestic investment spending by businesses on e.g. fixed assets Net Spending by foreign sector net exports of goods and services (NX = X M) Government consumption expenditures and gross investment include e.g. defense expenditures
Calculating its Value Three Approaches Income Approach adding up production-related domestic incomes (wages, rents, profits) earned by all individuals and organizations Closed vs. open economy Need to taken into account - Net income from RoW : to be deducted - Depreciation: consumption of fixed capital to be added GDP = NI Net income from RoW + Depreciation
Growth, Price Changes and Real GDP GDP Growth changes in GDP over time, percentage change in the value of GDP from one year to another. Percentage change = [(Value2-Value1)/Value1]*100 Annual growth and quarterly growth
Growth, Price Changes and Real GDP Nominal vs. Real GDP Nominal GDP total production valued at current prices (current meaning the year in consideration)!! Not only the level of output but also the price levels change from one year to another. Real GDP Actual value of goods and services produced which is net of price changes GDP = Σ (P x Q)
Growth, Price Changes and Real GDP Calculate Real GDP using constant prices from a base year/reference year For the base year Nominal and Real GDP are same! Use of price indices to measure the changes in prices as compared to another period. CPI consumer price index: measuring changes in prices of goods and services bought by households. Weighted average of a bundle of goods and services
Growth, Price Changes and Real GDP Use changes in CPI to calculate for inflation! Inflation growth rate of prices When weights are constant, tend to overstate inflation because people may look for cheaper substitutes! Updating the market basket periodically using information from household budget/expenditure surveys
Growth, Price Changes and Real GDP Other indices are used: e.g. PPI using prices facing domestic producers Baskets are different, inflation rates differ! GDP Deflator implicit price deflator GDP Deflator = (Nominal GDP / Real GDP) *100 Reflects changes in all the prices of goods and services included in GDP.
Growth, Price Changes and Real GDP 25,00 20,00 15,00 10,00 5,00 0,00-5,00-10,00-15,00-20,00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 OECD - Total European Union (27 countries) Euro area (16 countries) Turkey
Growth, Price Changes and Real GDP CPI inflation Turkey (yearly basis) Historical Trajectory Current CPI inflation Turkey (yearly basis) last 12 months
Growth, Price Changes and Real GDP