The most commonly used measure of economic performance is GDP and while there is agreement that it is an important and useful measure, there is also agreement that there are some big problems with it. Does it measure welfare or quality of life? What is and isn’t included? Do some things add to GDP which actually make us worse off?
One criticism often levelled at GDP is that there are many aspects that go unmeasured – often known as the underground economy. Some areas are typical everyday things – DIY, looking after your own children rather than paying someone to do it, or even giving yourself a haircut. But, there are other activities, often illegal, which go unrecorded, such as the selling and distribution of drugs and prostitution. In countries like the Netherlands, their GDP figures get a boost, as some drugs and prostitution are legal. In other countries, such data is not recorded and as such, the contribution of these markets is under-estimated or even completely omitted.
However, this aspect of the calculation of GDP statistics is changing across Europe, which will allow much easier and more meaningful comparisons of relative GDP across countries. This extra production will therefore offer a positive contribution towards our GDP and perhaps suggest to the untrained eye that the British economy is growing, which can only be good news. But, for the trained economist, we are looking at extra data being added, which will boost total output and the question will be does it really indicate that the economy is better off? The following articles consider this change to GDP.
Small data: The way drugs and prostitution boost the economy BBC News (4/4/14)
Small data: Calculating the sex and drugs economy BBC News (2/6/14)
UK economic output to be revised up after ONS updates BBC News, Anthony Reuben (10/6/14)
UK economic output will get near 5 percent boost from data changes Reuters (10/6/14)
Accounting for drugs and prostitution to help push UK economy up by £65bn The Guardian, Katie Allen (10/6/14)
Questions
- What does GDP measure? Is it good at measuring it?
- Explain the pros and cons of using GDP to measure the welfare of an economy.
- Why are there problems using GDP to compare output between countries?
- Is it a good idea to include markets such as sex and drugs in calculating a nation’s output?
- What other measures of welfare do we have?
How much value do you place on that wonderful long weekend that a Bank holiday brings? The extra lie in; the ensuing 4 day week; the time you spend with your family. Some would say it’s invaluable – you can’t put a price on it. But those some people would not be economists! Each Bank holiday is worth about £2bn – at least that’s how much it costs the economy.
According to the Centre for Economics and Business Research, if the UK got rid of its Bank holidays, GDP would increase by approximately £18bn.
Some businesses will do well out the Bank holidays, but according to the research, the sectors of the economy that suffer are far greater, causing losses in productivity and hence in GDP. Indeed, the extra Bank Holiday we had last year for the Royal Wedding is thought to have been part of the cause for the slow down in growth to 0.1% during the second quarter of 2011.
Based on this data, there are unsurprisingly concerns that the extra Bank holiday this year for the Queen’s Diamond Jubilee could also cost the economy. Not particularly good news, considering how vulnerable the economy currently is. Although the Queen’s Diamond Jubilee will undoubtedly generate huge amounts of spending, it is thought that this will be more than offset by the sectors that are expected to lose out because of the loss in working hours and hence productivity.
Given the cost of Bank holidays to the economy, the CEBR says that they should be spread more evenly throughout the year. Is this the solution &ndash if one is needed – or should they be abolished altogether! The following articles consider the issue.
Do we really need bank holidays? Asks CEBR Telegraph, Emily Gosden (30/10/11)
Bank holidays ‘cost economy £18bn’ Independent, John Fahey (9/4/12)
Bank holiday costs UK economy £2.3bn Sky News, Tadhg Enright (9/4/12)
Bank holidays ‘cost economy £19bn’ BBC News (9/4/12)
Bank holidays cost UK economy £18bn and ‘should be spread out’ Mail Online (9/4/12)
Questions
- How could we use marginal utility theory to measure the ‘value’ of a Bank holiday?
- Which sectors will generally benefit from Bank holidays?
- Which areas of the economy are likely to contribute towards lost output because of a Bank holiday?
- Why does CEBR suggest that spreading out Bank holidays more evenly across the year would be less costly for economic growth?
- How can the value of lost output during one day be calculated?
- Does a Bank holiday add to somebody’s well-being? How could we measure this?
The most commonly used measure of economic performance is GDP and while there is agreement that it is an important and useful measure, there is also agreement that there are some big problems with it. Does it measure welfare or quality of life? What is and isn’t included? Do some things add to GDP which actually make us worse off?