oecd better life index

8/3/2019 OECD Better Life Index

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Good life: Americans earn more money, but Europeans get more satisfact ion.

4, 2011


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PARISThe pursuit of happi-ness is one of Americas prom-ises to its citizens, enshrinedin the Declaration of Inde-pendence. But today, Ameri-cans are a profoundly unhap-py people. Their sour mood in

the wake of the Great Recession reflects grow-ing disillusionment with the exceptionalismof the American Dream and a widespreadsense that the United States is in decline. Theperceived fall from greatness, and who is to

blame for it, are already shaping up as majorthemes for the 2012 campaign.

Many in Washingtonincluding thepresidentare really arguing over how bestto manage the decline of our nation, Rep.Paul Ryan, R-Wis., the House Budget Com-mittee chairman, charged in an early salvolast month.

But a very narrow set of objective econom-ic indicators will fuel much of the debate over

the United States stature: annual growth othe gross domestic product, unemploymentand overall wealth. As it happens, the countrys performance based on these metrics isremarkably good compared with other ma

jor industrial nations. Although the publigloom reflects doggedly high unemploymentit doesnt fully explain the broader sense of anational slide in stature. Looking at a widerarray of measures about the quality of life may

better explain that uneasiness.One early version of such a tool now exists

just in time to help frameand perhaps informthe 2012 election debate about American exceptionalism.

In late May, the Organization for Economic Cooperation and Development, the Paris

based think tank supported by 34 industrialized nations, released its first-ever YourBetter Life Index. The interactive databasecompares member countries along 11 sepa-rate lines, from indicators of wealth and in

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ECONOMY

A new rating system compares morethan gross domestic product, and itsuggests that the U.S. lags many of itspeers on health, education, and personalfulfillment. By Bruce Stokes

WhatMakes aCountryGreat?


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ECONOMY

nances and creating jobs, a fact not lost onits citizens.

THE PURSUIT OF HAPPINESS

Money isnt everything, of course, and purelyeconomic metrics are, at best, limited indica-tors of national well-being. Just ask any Wash-ingtonian stuck on the Capital Beltway atrush hour. Traffic jams increase gasoline con-sumption, which shows up in economic dataas a plus for the GDP, but they obviously dontimprove the quality of life. Ill health can havethe same effect, with increased spending and

come to measures of health, education, per-sonal fulfillment, and leisure time. The goal,OECD officials say, is to help people identifytheir preferences and encourage public de-

bates within countries about the broadestmeaning of well-being.

People around the world have wanted togo beyond GDP for some time, the organiza-

tions secretary-general, Angel Gurria, said.This index is designed for them. It has ex-traordinary potential to help people help usdeliver better policies for better lives.

AMERICA IN DECLINE?

Republican presidential wannabes are al-ready championing the exceptionalism of

American life with a fervency that suggeststhey doth protest too much. UndeclaredGOP presidential hopeful Mitt Romney hastitled his new book, No Apology: The Case forAmerican Greatness. Sarah Palin told an audi-ence in Colorado last month that America

is not in decline. [There is] not a need for afundamental transformation of America.There are many measures of success anddecline, however. The U.S. economy is stillthe largest and wealthiest in the industrial-ized world. Relative to Europe and Japan, theUnited States is recovering quite well fromthe Great Recession. The International Mon-etary Fund expects Americas economy togrow 2.8 percent this year, much better thanthe 1.8 percent expansion that the IMF fore-casts for the European Union or the 1.4 per-cent it foresees in Japan. The U.S. is likely tooutperform both of those economic rivals at

least through 2016. Moreover, America ranksfirst in global competitiveness, up from thirdlast year, in the International Institute forManagement Developments annual rankingof nations economic performance. That de-termination is based on an array of measuresthat include public finances, productivity,education, and basic infrastructure.

Nevertheless, Chinas economy is now ex-pected to be larger than Americas by 2016,thanks to years of stronger growth. The IMFforesees unemployment in the United Statesaveraging 8.5 percent through 2011, about 2points higher than joblessness in Germanyand 4 points higher than in Japan. The U.S.governments deficit will remain close to11 percent of the economy, higher than thatof Japan and more than four times that ofGermany. On its current trajectory, the fed-eral debt will equal 90 percent or more ofU.S. gross domestic policy by 2020, many an-alysts predict.

Given the trauma of the past several years,its not a surprise that many Americans em-

brace a declinist worldview rather than anexceptionalist vision. In a November 2010

Allstate/National Journal Heartland Monitorpoll, only 20 percent of Americans thought

that the United States had the worlds stron-gest economy. More than twice as many, 47percent, picked China. Asked which nation

will have the best economy two decades fromnow, 37 percent chose China and 34 percentthe United States. In the latest HeartlandMonitor survey, taken last month, 58 percentof Americans thought that the country wason the wrong track. (See Race to the Top, thisissue, p. 24.)

In terms of its raw economic size and wealth, the United States is still No. 1. But America is doing poorly in managing its fi-

4, 2011

Misleading measure: Traffic jams boost gross

domestic product but reduce quality of life.


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37 4, 2011

production of medical services reflected asa positive for the economy.

The commonly accepted standard of so-cial progress, GDP, is seriously deficient, saidRichard Easterlin, an economics professor atthe University of Southern California. In-stead of GDP, measures relating to the mul-tiple dimensions of well-being, not just mate-rial gains, should be used in policy decisionsand welfare evaluations.

To that end, in 2008, French PresidentNicolas Sarkozy asked three prominent econo-mistsJoseph Stiglitz and Amartya Sen, both

Noble Prize winners, and Jean-Paul Fitoussito lead a commission to consider better mea-sures of social progress. Their report calledfor a sea change in the way that economistsand politicians think about the benefits ofeconomic growth. They rejected the sole re-liance on traditional economic measures andpushed for a broader array of quality-of-life in-

dicatorspeoples health, education, and per-sonal satisfaction, as well as a communitysenvironmental quality. Widening the lens onlife, they argued, would lead to better evalua-tions of public well-being and, perhaps, betterpolicy decisions.

What we measure affects what we do,the three economists concluded, and if ourmeasurements are flawed, decisions may bedistorted.

The OECDs Your Better Life Index is anattempt to translate that vision into practice.The initiative includes objective quantitativeindicators, such as life expectancy, unemploy-

ment, and household income, as well as sub-jective measures, such as peoples perceptionsof their own health, sense of community, andlife satisfaction.

We dont want to replace GDP, said Mar-tine Durand, the OECDs chief statistician.Its just that GDP doesnt capture all aspectsof how people measure their lives.

The organization hopes that if citizenshave a means of judging the broad successof their societiesfrom economic growth to

work-life balancethey will hold their gov-ernments to a higher standard. If you tellelected officials what is in the test, they will

study for the test, one senior OECD offi

cialwryly observed.The OECD began wrestling with these

concepts seven years ago and recently de-cided to pull them all together, timed for re-lease during the organizations 50th year and,serendipitously, during Sarkozys year asleader of the G-20 group of the worlds lead-ing economies.

Aware of the political pitfalls inherent incrowning one country over the others as the

best place to live, the OECD makes no at-tempt to come up with a single number en-capsulating the best country in the world.

Instead, it ranks countries according toa slew of indicators that highlight particular

values. Because different people have differ-ent priorities, the database allows them to as-sign their own weighting to those values andrank the countries accordingly.

If your only interest is earning money,for example, you might assign a maximum

weighting of 5 to income and a zero to ev-erything else. By that measure, the U.S. comesout solidly on top, after the city-state of Lux-embourg. If your primary interest is joy oflife, by contrast, you might place the greatest

weight to surveys of life satisfaction, life-

What wemeasure affects

what we do.Joseph Stiglitz, coauthor of report on new ways

to measure national success

People aroundthe world have

wanted to gobeyond GDP forsome time.Angel Gurria, Organization for Economic

Cooperation and Development

;//


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Ranking Nations by the Good LifeMoney is important, but it isnt every thing. The Organization for Economic Cooperation and Development created the Your Better Life Index to comparethe quality of life as well as economic prowess of its 3 4 member countries. The index measures each country using 11 different lines, including income,employment, health, education, environmental quality, and its citizens opinions about life satisfaction, work-life balance, and a sense of community.Because people have different priorities, the OECD index allows them to rank countries according to their own values. The United States remains at the topfor income and wealth, but it lags behind as a place to live a long and happy life.

Measured strictly in terms ofwealth (average household

income, household wealth, andsize of homes), the UnitedStates is the place to be. Onlythe city-state of Luxembourgranks higher, but its populationand average householdincome are both smallerthan those of some U.S. cities,such as San Diego.

The OECD index provides twoindicators for opportunity andupward mobility:job prospectsand educational achievement.The U.S was surprisinglymediocre on both measures,with reading ability just abovethe median for OECD countriesand long-term unemploymenthigher than most others. ButU.S. employment, which was hithard in the recession, maycompare more favorably a few

years from now.

The United States also faresworse when compared with

other OECD countries usingthree less tangible measures ofsuccess: citizens opinions abouttheir life satisfaction,work-life balance, and senseof community. In fact, amongwealthier OECD nations, thosewith median family incomesabove $22,000, the U.S. ranksbehind most of its peers. So, ifmoney isnt everything,Scandinavia beckons.

Ifpersonal safety is a toppriority, dont settle in the

United States. Violent crime hasbeen on the decline for years inthe U.S., but the nation still ranksnear the bottom of OECDcountries for safety. Mexico,beset by drug violence and aclimbing murder rate, trailsthe U.S.

OECD RANKING BEHIND THE NUMBERS

Safety countries rank better than the US

Land of Opportunity countries rank better than the US

oy of Life countries rank better than the US

Money and Wealth country ranks better than the US

Luxembourg

Canada

Luxembourg

Luxembourg

ndst th

th

th

thth

Mexico

US

Turkey

thst

US

US

US

st th

Denmark

Turkey

st

Japan

Turkey

Canada

Iceland

Ireland

UK

Israel

Greece

PolandSlovak Republic

Slovenia

HungaryAustria

ItalyPortugal

Spain

Czech Republic

Norway Sweden

Finland

Netherlands

JapanS Korea

Australia

New Zealand

Denmark

Switzerland

BelgiumFrance

Germany

Includes all land of opportunitycountries except Japan and S Korea

Includes all land of opportunity countriesand all joy of life countries except Belgium

MEASURES IN THE OECDs INDEXCommunity education environment governance health housing income jobs life satisfaction safety and worklife balanceNOTE To compute the rankingsNational Journalgave the featured measures in each scenario a weight ofthe maximum and the remaining measures a weight ofthe minimumIndividuals can see how the US stacks up against their own values by going to http//wwwoecdbetterlifeindex org/

ncome housing and jobs

ducation and jobs

ommunity environment life satisfaction and worklife balance

afety

4, 2011


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work balance, and perhaps community.That would put Denmark at No. 1, followedclosely by most other Western European coun-tries, as well as Australia, Canada, and NewZealand. The United States ranks 17th. Putanother way, America is a good place to makemoney, but its not as much fun or as fulfillingto live there as in a lot of other countries.

The Better Life Index has clear shortcom-ings. It has no measure for inequality, despitea rising gap between the rich and the poor inthe United States and in a number of othermajor economies. Human happiness is rela-tive. It is not just a function of how peopleare doing, but how their lives stack up againstthose of their peers.

Moreover, the index has no indicator ofenvironmental sustainability, such as car-

bon emissions or rates of natural-resourcedepletion that would link a nations econom-ic growth to the Earths carrying capacity.Strong economic performance at the expense

of future generations may create a better lifefor those living today, but be regretted bythose alive tomorrow.

And the index itself is also built with lim-ited statistical indicators. The environmentalcomponent is based solely on particular mat-ter in the air of cities. The health componentis based only on life expectancy and self-re-ported health.

Over time, the organization hopes to addother measures of well-being, such as inequal-ity and sustainability. It also plans to includemore countries in its comparisons, amongthem Brazil, China, India, Indonesia, Rus-

sia, and South Africa. Nevertheless, the indexdoes point to real differences between whatcountries offer.

Income. As might be expected of the worlds richest country, Americans enjoythe most disposable household income andhave the greatest household financial wealthamong the nations that make up the OECDindex. Only the residents of tiny Luxembourgare better off, but that country has fewer peo-ple and a lower average household incomethen San Diego County.

Based on these economic metrics, Ameri-cans still top the list. At nearly $38,000 an-nually, after adjusting for purchasing power,

Americans after-tax income is two-thirdshigher than the OECD average and outpac-es the second-place Norwegians income bymore than $8,000 a year. Americans are also

wealthier, on average, than their counterpartsin every other OECD country. Adjusted forpurchasing power, the average U.S. householdhas $98,000about $5,000 more than thesecond-place Swiss.

Income and wealth indisputably help pro-vide many Americans with a better life, givingthem access to quality education, health care,and housing.

Jobs. For most people, the primarysource of income is their job, which also af-fords them workplace friendships, a sense ofself-esteem, and marketable skills. In 2010, 67percent of Americans ages 15 to 64 had a paid

job. Although this is roughly the OECD aver-age, the employment rate in the United Stateshas been falling, and America now trails 14

other advanced economies, led by Switzer-land at 79 percent, in the proportion of its

working-age population that holds a job.Particularly troubling, the percentage of

the U.S. labor force that has been unemployedfor a year or longer was 2.85 percent in 2010,slightly higher than the OECD average, andthat number is on the rise. The long-term un-employed tend to lose their job skills, makingit even less likely that they will again find full-time employment.

The United States weak ranking on em-ployment may be temporary. For years beforethe Great Recession, job creation was stron-

ger here than in Western Europe and JapanGiven that U.S. aggregate economic growth isonce again faster than that of Europe or Ja-pan, the comparative job picture may improveas the recovery gains strength.

Work-life balance.Work and income enable Americans to afford both the necessitiesand the luxuries of life, but only if they have

time to enjoy them. Americans work a lot ohours: 1,768 annually, or about a half-hour a

week more than the average in other OECDcountries. This nose-to-the-grindstone behavior outperforms even the Japanese and SouthKoreans, who have a reputation as hard workers. It also leaves Americans with less time forsleeping, eating, socializing, and sports andother recreational activities. In their attentionto such personal care and leisure, Americanstrail the laid-back Belgians, the siesta-seekingSpanish, and the industrious Germans.

Community.Americans sense of excep-tionalism has long been rooted in their strong

communities, a phenomenon recognized by Alexis de Tocquevillein Democracy in America in theearly 19th century. More recentlyhowever, commentators such aRobert Putnam in Bowling AloneThe Collapse and Revival of American Community have lamented

Americans growing alienationThis theme has been picked up

by politicians, who have callefor policies that bolster familiesand communities. For their partaverage Americans do not com

plain much about alienation. Atthe same time, there is nothingexceptional about Americanssense of community.

As social creatures, people well-being is framed by the frequency and quality of their personal relationships, which pro

vide both emotional and practicasupport, such as job opportunities. Nine out of 10 Americans (92percent) say they know someonethey can rely on in a time of needa percentage that is above theOECD average. Conversely, veryfewonly 3 percentsay theyrarely spend time with familyand friends, which is much betterthan average.

Nevertheless, if Tocquevillewere writing about community to-day, he would find better evidenceof exceptionalism in AustraliaCanada, New Zealand, and Scandinavia, whose citizens are morelikely than Americans to have tigh

bonds with family and friends. Life satisfaction. Mon

The love of wealth is at the bottom of allthat the Americans do.Alexis de Tocqueville, Democracy in America

ECONOMY


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ECONOMY

ey cant buy you love, the Beatles advised usnearly a half-century ago. Now it is clear thatit buys Americans only a modicum of satis-faction (hat-tip to the Rolling Stones). Giv-en their wealth, Americans are happier thanmost people in other advanced societies, butthey are not nearly as satisfied as Sarah Palinor Mitt Romney think they should be.

Human happiness is a subjective concept,the product of positive experiences and feel-ings that outweigh negative sentiments andadd up to relative degrees of satisfaction withlife. Economists have long disdained suchephemeral concepts, preferring more-quanti-fiable measures of fulfillment, such as income.But the profusion of public-opinion surveys

makes it possible to map how people assessthe quality of their lives.

Despite the recent recession, seven in 10Americans are satisfied with their lives, andeight in 10 believe that their lives will be ful-filling five years from now. Three in four

Americans (76 percent) report having morepositive experiences, such as feelings of be-

ing rested or of pride in accomplishment, dur-ing an average day than they do negative ones,such as pain, worry, sadness, or boredom, ac-cording to Gallup surveys.

But Americans self-assessment is onlyslightly above the OECD average, hardly asign of exceptional happiness. Perhaps evenmore telling, the United States ranks nearlylast among the relatively wealthy OECD coun-triesthose whose citizens have average dis-posable household incomes above the orga-nizations median of $22,000. The Nordics,Dutch, Canadians, Australians, Israelis, andeven the recently financially troubled Irish

and Spanish are all happier than Americans.

ECONOMICS OF HAPPINESS

The OECDs Your Better Life Index is the lat-est in a long series of efforts to grapple with

what scholars call the economics-of-happi-ness debate.

This research is largely based on pub-lic-opinion data, drawing on the pioneering

work done 50 years ago by Hadley Cantril, a

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social psychologist at Princeton University.Cantril showed people a 10-step ladder andasked them to place themselves on a step inresponse to various questions. Their answers

were then correlated with their income, gen-der, age, and education. (There was one hitch:In some cultures, people had no idea what aladder was.)

Cantril determined that the relationship between material well-being and happinesswas tenuous at best, a finding that has beenconfirmed by more-rigorous and extensivesurveys since then.

Contrary to what economic theory as-sumes, the University of Southern Califor-nias Easterlin said, more money does notmake people happier. At a point in time, hap-piness varies directly with income. But overtime, happiness does not increase when acountrys income increases. This has cometo be known as the Easterlin paradox.

Allen Parducci, another University of

Southern California researcher, argues thatthe paradox can be explained by the fact thatpeoples expectations ratchet up over time,in line with improvements in their income.

A bigger paycheck ultimately leaves manypeople no happier.

This conclusion was borne out by the 2007Pew Global Attitudes survey of public senti-ment in 47 countries. An overwhelming ma-

jority of Americans (65 percent) were satisfied

with their lives, but an even larger proportionof Mexicans (76 percent) said they were satis-fied with theirseven though the per capitaincome of Americans was four times higher.Clearly, satisfaction with life has to do withmore than just money.

Happiness research, said Carol Gra-ham, a senior fellow at the Brookings Institu-

tion, [has] allowed us to uncover significantamounts of public frustration among precise-ly those groups that should be satisfied or hap-py, according to our income-base measures.

What does make people happy? A stablemarriage, good health, and enoughbut nottoo muchincome are good for happiness,she said. Unemployment, divorce, and eco-nomic instability are terrible for it.

The policy implications of the new happi-ness research are just beginning to becomeapparent. Not surprisingly, recent survey datashow that happiness declined significantlyamong Americans in the wake of the 2008 fi-

nancial crisis.But after the Dow Jones industrial aver-

age stopped falling, individual happiness re-covered much faster than Wall Street did. ByJune 2009, happiness exceeded precrisis lev-els, even though living standards remaineddepressed. Once the uncertainty ended,said Graham, author of the forthcoming bookThe Pursuit of Happiness, people seemed to

be able to return to previous happiness levels,

while making do with less income or wealth.For a nation that faces years of austerity

and for the politicians who must lead votersthrough these constrained times, these findings offer hope. Peoples expectations of lifeadjust to fit their new circumstances. A society and its politics can stabilize once economic turbulence subsides.

Dont expect much discussion in the upcoming election season about feeling better

while having less. Candidates will cherry-picktheir measures of Americas decline or its relative success to fit their political narrative, andmoney and jobs are more tangible than suchsofter values as community ties and free time

Still, the OECD index and the growingbody of research into happiness could lead toa more nuanced debate.

The index suggests that the United Statesis neither as exceptional as some Americans

would like to believe nor at the beginning oan epic decline. The U.S. is becoming a nor-

mal nation, one with great shortcomings bualso much going for it. Most important, theindex tells us nothing about the countryspotential, which arguably remains limitlessThat is the vision for politicians to paint, aslong as they are clear and honest about Americas starting point.

The author is a senior fellow at the German Marshall Fund.

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