This article is part of the Eurostat online publication Quality of life indicators, providing recent statistics on the quality of life in the European Union (EU). The publication presents a detailed analysis of many different dimensions of quality of life, complementing the indicator traditionally used as the measure of economic and social development, gross domestic product (GDP).
The present article is a general introduction to the set of '8+1' statistical articles (see below), sketching the conceptual, policy and methodological backgrounds: what is quality of life and how can its different aspects be measured adequately?
The need for measurement beyond GDP
Quality of life is a broad concept that encompasses a number of different dimensions (by which we understand the elements or factors making up a complete entity, that can be measured through a set of sub dimensions with an associated number of indicators for each). It encompasses both objective factors (e.g. command of material resources, health, work status, living conditions and many others) and the subjective perception one has of them. The latter depends significantly on citizens’ priorities and needs. Measuring quality of life for different populations and countries in a comparable manner is a complex task, and a scoreboard of indicators covering a number of relevant dimensions is needed for this purpose.
National accounts aggregates have become an important indicator of the economic performance and living standards of our societies. This is because they allow direct comparisons to be made easily. Gross Domestic Product GDP, one of these aggregates, is the most common measure of the economic activity of a region or a country at a given time; many decision and policy makers use it as the standard benchmark, often basing their decisions or recommendations on it. It includes all final goods and services an economy produces and provides a snapshot of its performance. GDP is very useful for measuring market production (expressed in money units). However, although it was not intended as an indicator of social progress, it has been considered to be closely linked to the well-being of citizens. The following are a number of reasons why GDP is not sufficient for this purpose, and therefore needs to be complemented by other indicators.
Other measures of income reflect better households' situations
While GDP is very useful for measuring market production and providing an indicative snapshot of an economy at a given time, it does not provide a comprehensive picture of how well-off the citizens of a society are. As described in the J. Stiglitz, A. Sen and J.P. Fitoussi Report (Measurement of Economic Performance and Social Progress - 2009) citizens’ material living standards are better monitored by using measures of household income and consumption. Stiglitz, Sen and Fitoussi argue that the income of a country’s citizens is ‘clearly more relevant for measuring the well-being of citizens’ than domestic production.
In many cases, household incomes may develop differently from real GDP and therefore provide a different picture of this aspect of citizens’ well-being. As shown in Figure 1, for the period 2005–2012, GDP (in real terms) in the euro area reached its peak during the first quarter of 2008 and plunged to a record low almost a year later, in the second quarter of 2009. This sharp decrease reflects the beginning of the financial crisis. The decrease is however not reflected in citizens’ income during the first years of the crisis. On the contrary, households’ gross disposable income for the same period (the first quarter of 2008 to the second quarter of 2009) seemed to slightly increase. One of the reasons for this apparent inconsistency is that social transfers (social security benefits, reimbursements etc.) seem to have absorbed and softened the effect of the crisis (at least during the first few years).
Increasing GDP today, depleting resources for tomorrow
Social, environmental and economic progress does not always go hand in hand with an increase in GDP. For example, if a country decides to cut down all its forests, it will dramatically increase its timber exports, thus increasing its GDP. If GDP were the only indicator of quality of life, this would mean that the population of this country would have greatly improved its well-being. However, the deforestation would have a significant impact on the population’s quality of life in the mid and long term: loss of natural habitat, soil erosion and more. GDP definitely measures quantity, but not necessarily other aspects of production (such as distribution and potential impacts for the future).