Measurable Economic Welfare (MEW)

Measurable Economic Welfare (MEW) is an alternative measure for living standards. It measures not only the total national output (GDP) but also includes the economic welfare of the country. This includes an assessment of the value of leisure time and the amount of unpaid work in an economy. MEW also includes the value of the environment damage caused by industrial production and consumption.

MEW image

Comparing this measure to GDP, it is an instant reaction to all of us that this measure is better than GDP as it includes economic welfare. This is because including economic welfare would mean it could better measure the standard of living in the country. GDP is unable to measure the standard of living as it does not include economic welfare, like for example, working hours and working conditions. Added to this, it also takes in to account the value of environmental damage caused by industrial production and consumption, like for example pollution, which will further make the calculation of living standards accurate.

However, there is a problem to this measurement. Putting a monetary value to economic welfare like the value of leisure time and unpaid work is hard. How do you put a value to the amount of leisure time you have in a day? Furthermore, how do you calculate this when we take into account everyone in the country? Due to this difficulty, measuring MEW could be inaccurate as the original value placed is already inaccurate.

So is MEW a good measurement? In a way, it is much better than GDP as it takes into account economic welfare, however, putting in a monetary value to the economic welfare could be hard and inaccurate.

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MEW and NEW (No it’s not about cats)

So…. I’m supposed to evaluate MEW, NEW, and how effective it is to measure and compare national welfare between countries. Lets start with some background for these two.

Measurable Economic Welfare, In 1972, William Nordhaus and James Tobin developed Measure of economic welfare (MEW).This adjusts GDP by adding leisure, unpaid housework and the value of services given by consumer durables over the year. Deductions are made for things like expenditure on commuting to work, defence, the police, negative externalities like pollution, and expenditure on consumer durables.
Net Economic Welfare (NEW) which is a proposed national income measure that attempts to put a value on the costs of pollution, crime, congestion, and other ‘negative’ things, in order to find a better measure of national income. So pretty much the same thing as MEW even the acronym is similar MEW, NEW.

Ok we got some background for these two now lets compare them to each other and GDP, MEW and NEW both take into account the things GDP doesn’t as stated above. As such it is a decent indicator of welfare within a country. However, just because it is better than GDP in calculating and comparing welfare it doesn’t mean that it is the best due to several flaws in the way that they calculate things. MEW takes into consideration unpaid housework and leisure which boosts the GDP but deducts commuting costs and other variables from it. NEW only considers the value of negative things this can has some flaw as there are several positive things that are considered in MEW but not in NEW and several negative things considered in NEW but not in MEW.

So now that we’ve compared the three lets see where holes still exist within this system.

When MEW and NEW work in conjunction with each other it is more accurate and when used separately there are things that are left out, but even if they are used together there are still things that are not considered like the black market and peoples reliance on it, and unofficial economies like self-sustaining communities within the country that does not rely on the national economy. These things are arguably more common in developing countries where not everyone in the country even knows what is going on outside their own villages or even realises they are apart of a country. In several countries in Africa there still exists untouched communities and tribes that are self-reliant and even if they are doing very well it will not be counted within the MEW and NEW as there is close to no documentation of this.

In conclusion using MEW and NEW to compare and evaluate economic welfare of countries is extremely good when compared to using the GDP however I believe that it is still lacking in consideration to isolated and/or self-sufficient communities.

Human Development Index

The Human Development Index (HDI) is a measure of economic development and economic welfare.

The HDI examines three important criteria of economic development: Life expectancy, Education and Income levels. It uses this to create an overall score between 0 and 1. The closer to 1 the score is, the higher level of human development.

The HDI combines

  1. Life Expectancy Index. Average life expectancy compared to a global expected life expectancy..
  2. Education Index
    1. mean years of schooling
    2. expected years of schooling
  3. Income Index (GNI at PPP) – Levels of wealth within the country as measure of GDP per capita and adjusted in Purchasing Power Parity (PPP).

HDI_EN


Limitations of the Human Development Index

  • Wide divergence within countries. For example, countries like China and Kenya have widely different HDI scores depending on the region in question. (e.g. north China poorer than south east)
  • HDI reflect long-term changes (e.g. life expectancy) and may not respond to recent short-term changes.
  • Higher National wealth GDI may not necessarily increase economic welfare, it depends how it is spent.
  • Also higher GDI per capita may hide widespread inequality within a country. Some countries with higher real GDI per capita have high levels of inequality (e.g. Russia, Saudi Arabia)
  • However, HDI can highlight countries with similar GDI per capita but different levels of economic development.
  • Economic welfare depends on several other factors, such as – threat of war, levels of pollution, access to clean drinking water e.t.c.

Benefits of the Human Development Index

  • There is widespread use of HDI to compare development levels and it does reveal clear global patterns.
  • Does not solely concentrate on economic development, and takes into consideration that there are other, more social, ways to measure human development.
  • Increase in education and health shows an improvement in a countries infrastructure.

Examples:

Components of HDI score 2011

(HDI)  Life expectancy at birth Mean years of schooling Expected years of schooling (GNI) per capita
HDI rank Value (years) (years) (years) (Constant 2005 PPP$)
2011 2011 2011a 2011a 2011
1 Norway 0.943 81.1 12.6 17.3 47,557
2 Australia 0.929 81.9 12.0 18.0 34,431
3 Netherlands 0.910 80.7 11.6 b 16.8 36,402
4 United States 0.910 78.5 12.4 16.0 43,017
5 New Zealand 0.908 80.7 12.5 18.0 23,737
6 Canada 0.908 81.0 12.1 b 16.0 35,166
7 Ireland 0.908 80.6 11.6 18.0 29,322
8 Liechtenstein 0.905 79.6 10.3 c 14.7 83,717
9 Germany 0.905 80.4 12.2 b 15.9 34,854
10 Sweden 0.904 81.4 11.7 b 15.7 35,837

Lowest 10 Counties for HDI

(HDI) Life expectancy at birth Mean years of schooling Expected years of schooling (GNI) per capita
177 Eritrea 0.349 61.6 3.4 4.8 536
178 Guinea 0.344 54.1 1.6 w 8.6 863
179 Central African Republic 0.343 48.4 3.5 6.6 707
180 Sierra Leone 0.336 47.8 2.9 7.2 737
181 Burkina Faso 0.331 55.4 1.3 r 6.3 1,141
182 Liberia 0.329 56.8 3.9 11.0 265
183 Chad 0.328 49.6 1.5 i 7.2 1,105
184 Mozambique 0.322 50.2 1.2 9.2 898
185 Burundi 0.316 50.4 2.7 10.5 368
186 Niger 0.295 54.7 1.4 4.9 641
187 Congo (Democratic Republic of the) 0.286 48.4 3.5 8.2 280

Notes:

Before 2011, the human development index used adult literacy rates rather than mean years of schooling.

Sources:

http://www.economicshelp.org/blog/glossary/human-development-index/

https://danielwinsburysociology.wordpress.com/2014/01/17/how-is-development-measured-positives-and-negatives-of-the-human-development-index-hdi/

The Global Multidimensional Poverty Index

The Global Multidimensional Poverty Index or MPI for short is an analytical tool that is used to identify the people living in poverty and to reveal poverty patterns within countries over time. It was developed by the Oxford Poverty and Human Development Initiative and the United Nations Development Programme with the aim to replace the Human Poverty Index and to introduce the inequality into the Human Development Index. The MPI measures deprivation using three dimensions which are identified as Health, Education and Living Standards which are then revealed by ten different indicators which are Child Morality, Nutrition, Years of Schooling, School Attendance, Cooking fuel, Toilet, Water, Electricity, Floor and Assets.

The MPI requires multiple indicators to be accounted for in the measurements for each dimension of poverty. This is done to consider overlapping deprivations suffered by people at the same time which other indexes such as the Human Development Index or HDI for short fail to consider. The disadvantage to this, however, is that not all countries collect necessary data on the different indicators for the different dimensions of poverty. As such, the MPI is only calculated for in a handful of countries – one hundred countries to be precise.

With the above knowledge in mind, in my opinion, the Multidimensional Poverty Index in its current circumstances has failed to be an effective poverty indicator as it fails to be able to be used for all countries. However, the advantages that the MPI brings is far too much to overlook – the ability to account for inequality when trying to indicate poverty is very beneficial in trying to identify poverty. Especially in the United Nations’ pursuit of eradicating poverty and inequality. The creators of the MPI – The Human Development Initiative and the United Nations Development Programme – should stress the importance of data collection and to assist countries in collecting necessary data for the ten different indicators. Then the MPI can be used for all countries and function as the poverty indicator it was meant to be.