THE VALUE ADDED OF ANALYSING HOUSEHOLDS? Peter van de Ven Head of National Accounts OECD The Accounts of Society Luxembourg, June 12 – 13, 2014

Introduction Stigliz-Sen-Fitoussi Report (initiative of Sarkozy) Presented in September 2009 Basically an inventory and evaluation of state of the art Three pillars: Alternative indicators from national accounts (5 recommendations) Quality of life (5 recommendations) Sustainability (2 recommendations) Several other (national) initiatives: “GDP and beyond”; OECD Better Life Index

Introduction Five recommendations related to the System of National Accounts: 1.When evaluating material well-being, look at income and consumption rather than production 2.Emphasize the household perspective 3.Consider income and consumption jointly with wealth 4.Give more prominence to the distribution of income, consumption and wealth 5.Broaden income measures to non-market activities

Households in national accounts National Accounts is more than economic growth, and also more than Y = C + I + E – M Full overview of income, expenditures, financial transactions and balance sheets by institutional sector (households, government, corporations, rest of the world) Households: disposable income, final consumption, savings, wealth, etc. (including details) Adjusted disposable income = disposable income + goods and services provided free or at reduced prices by government (e.g. health, education)

Households in national accounts However, public and political attention goes almost entirely to economic growth! How to change this? Put more emphasis on other indicators in communication (e.g. press release on household disposable income) Show and analyse differences between economic growth and disposable income Include and publish distributional information Prerequisite: timely availability of relevant data (at macro-level generally fine, certainly in Europe, but generally no timely data on inequalities within households) Does it matter a lot? Does it change the perspective?

Five SSF-recommendations Five recommendations related to the System of National Accounts: 1.When evaluating material well-being, look at income and consumption rather than production 2.Emphasize the household perspective 3.Consider income and consumption jointly with wealth 4.Give more prominence to the distribution of income, consumption and wealth 5.Broaden income measures to non-market activities

International comparison of GDP and Household Adjusted Disposable Income

Economic Growth and Household Adjusted Disposable Income 8

Short evaluation International comparison: quite different picture Trend growth of economic growth and household (adjusted) disposable income closely aligned, except under some quite specific circumstances Short term developments may be quite different Probably more important to look at developments of mean income (instead of average income), as it also partly reflects changes in the distribution of income

Five SSF-recommendations Five recommendations related to the System of National Accounts: 1.When evaluating material well-being, look at income and consumption rather than production 2.Emphasize the household perspective 3.Consider income and consumption jointly with wealth 4.Give more prominence to the distribution of income, consumption and wealth 5.Broaden income measures to non-market activities

Balance sheets for households Better information on balance sheets for households important for analysis of sustainability, vulnerabilities and possible asset price bubbles Information on financial assets and liabilities usually available, also on quarterly basis Main problems related to non-produced non-financial assets (e.g. land, or total value of land and dwellings) –Eurostat/OECD Task Force on Land and Other Non-financial Assets –Residential Property Price Indices –More generally, much more interest in balance sheets

Debt to Income of households across countries

Five SSF-recommendations Five recommendations related to the System of National Accounts: 1.When evaluating material well-being, look at income and consumption rather than production 2.Emphasize the household perspective 3.Consider income and consumption jointly with wealth 4.Give more prominence to the distribution of income, consumption and wealth 5.Broaden income measures to non-market activities

Inequalities The importance of looking at income inequalities Large differences between countries Longer-term trend towards greater inequality Early evidence: small changes in income inequality in the most recent year ( ) since Source: OECD data base; Country scope: XXX Source: OECD Income Distribution Database, latest year available

Vulnerabilities The importance of looking at wealth distribution Analysing wealth distribution is essential for analysis of vulnerabilities in the household sector 15 Sources: CIR, EFF2008 (Spain), IBF 2008 (Italy), SCF 2007 (US) Sources: EFF 2002 (Spain), SCF 2001 (US), SHIW 2002 (Italy), BHPS 2000 (UK) Percentage of households holding debtDebt to income ratio of indebted households

OECD-activities on inequalities Main objectives: Development of proper framework for collecting micro-data on households (proper definitional framework on wealth; consistency between data for income, consumption and wealth) Achieving consistency between micro-data and national accounts estimates (present data complicate analysis of macro-economic developments including analysis of (developments in) distribution of income, consumption and wealth Timely availability of data on inequalities 16

OECD-activities on inequalities OECD Expert Group on Micro statistics on Household Income, Consumption and Wealth (EG ICW) –Methodological work to improve the distributional information available from micro sources in the future, in particular on wealth –17 NSOs, Luxembourg Wealth Study, UNECE, individual analysts, ECB, Eurostat OECD-Eurostat Expert Group to measure Disparities in a National Account framework (EG DNA) –Practical exercise – feasibility study on how to introduce distributional information from existing micro sources in national accounts –25 NSOs, Luxembourg Income Study, ECB, Eurostat 17

OECD Guidelines on Household Wealth: household-wealth.htm household-wealth.htm Report on Integrated Framework for Income, Consumption and Wealth: EG Micro-statistics (ICW) 18

Two Working Papers: Comparison of micro and macro sources (definitions, scope, and results) for household income (20 countries), consumption (21), and wealth (7) Experimental disparity indicators across household groups, consistent with national accounts; indicators fully/partially computed for income, consumption and savings (16 countries) In addition: Eurostat “a-minima exercise” EG Disparities National Accounts (DNA) 19

Goal: to arrive at distributional information consistent with national accounts for three types of household groupings: –By income quintile –By type of income (employees, self-employed, social benefits) –By composition of household (single person <> 65, multiple persons with/without children <> 65) EG Disparities National Accounts (DNA) 20

 Average gap macro/micro for household income, consumption and wealth 21 EG DNA: Main results

Relative position of each household group: adjusted disposable income per consumption unit compared to the average, by income quintile

EG DNA: Main results Relative position of each household group: actual final consumption per consumption unit compared to the average, by income quintile

Savings as a percentage of adjusted disposable income, by income quintile 24 EG DNA: Main results

Ratio of richest to poorest (Q5/Q1): comparison between the EG results and the OECD micro database (IDD) Note 1: The legend indicates the extent to which the IDD and the EG results are comparable. A star indicates similar micro sources. A year is indicated in case IDD and EG relate to the same year. Note 2: Micro measures are based on a grouping by individuals, whereas the EG is based on households.

Refine methodology on combining micro and macro sources, with focus on consistency income and consumption Compile data consistent with national accounts for a more recent year Consider the possible development of a methodology to compile more timely estimates of levels and changes Providing possibilities to link, model and analyse macro- economic policies and its impact on distribution of income, consumption and wealth Note: Several activities by Eurostat, ECB and countries Inequalities: way forward 26

Short evaluation Lack of official, comparable and consistent statistics on inequalities Work on inequalities considered as a major priority within the OECD Addressing policy issues related to inclusiveness of economic developments at a macro-level Primary importance given to having … more timely and more consistent estimates (first target: 9-12 months after the reference year) more consistent data: between income, consumption and wealth; and between micro and macro data

Five SSF-recommendations Five recommendations related to the System of National Accounts: 1.When evaluating material well-being, look at income and consumption rather than production 2.Emphasize the household perspective 3.Consider income and consumption jointly with wealth 4.Give more prominence to the distribution of income, consumption and wealth 5.Broaden income measures to non-market activities

Production boundary of national accounts: exclusion of unpaid services within households (and leisure time) Economic growth exaggerated? International comparability hampered? Issues: How to define and value the relevant services Relevance of national accounts for other purposes Valuation: Replacement costs Opportunity costs Non-market activities of households 29

Non-market activities of households 30 Average hours spent on unpaid household work per person per day in recent years

Value of labour costs in household production of non-market services, % of GDP, 2008 Non-market activities of households 31

Non-market activities of households 32 GDP per capita with and without household consumption of non-market services: 2008 PPPs (US = 100)

Non-market activities of households 33 Impact on average annual GDP-growth (30 – 40 years) OfficialReplacementOpportunity USA Canada UK Netherlands Norway

Analysts tend to think in terms of GDP only Inclusion of unpaid activities in the framework of national accounts has considerable consequences: Not only change in GDP, but also in household disposable income and final consumption Income concept will drift substantially further away from common perceptions of income Awkward changes: someone becoming unemployed will probably experience an increase in disposable income Hamper analysis of market economy Quality of short-term estimates (flash economic growth?) Impact and evaluation of including unpaid activities 34

A lot of progress has been made, still a lot of work needs to be done: Distribution of income, consumption and wealth Full balance sheets, including non-financial assets In some respects, emphasising households as the “solution” for measuring (economic) well-being is somewhat exaggerated Paraphrase on Einstein’s famous quote: “Not everything that’s valuable can be valued, and not everything that can be valued is valuable” Some concluding remarks 35

Thanks for your attention! 36