Accounting for the health dimension in European living standards during the first half of the 20th century.
Accounting for the health dimension in European living standards during the first half of the 20th century
The improvement in world living standards during the last two centuries is beyond dispute. Today’s world citizens live longer, healthier and are better nourished than their counterparts at any time in human history. This process did not follow a unique pattern as its pace varied significantly across continents, countries and even regions. In fact, nowhere else were these changes most evident than in Western countries where daily caloric supply has almost doubled in some cases (Fogel, 2004, 9), life expectancy at birth has increased by more than 40 years on average (Riley, 2005, 538) and the quality of life has risen as improved medical knowledge allows for better prevention and treatment of diseases (Mokyr and Stein, 1997).
Although at a slower pace, the aforementioned changes continue today shaping human relationships, population structure and economic performance worldwide. This begs the questions: are countries aware of the impact of health on their citizens’ living standards? Which tools or indicators do they use for this purpose? Traditionally, the most used indicator for this purpose is gross domestic product per capita (GDP). However, the use of this indicator underestimates and (sometimes) neglects many other important aspects of welfare as a recent report by the Stiglitz Commission (Stiglitz, Sen and Fitoussi, 2009).
In this paper, I focus on the health dimension of welfare and argue that GDP proves to be insufficient to account for this element as it only considers health care costs. This leads to a permanent underestimation of living standards as the economic gains of better health widely exceed its costs (Murphy and Topel, 2006; Hickson, 2009). This underestimation in living standards is particularly well illustrated by the European experience during the first half of the 20th century. In this period, Europeans witnessed substantial health improvements as increases in life expectancy at birth (Riley, 2005) and quality of life (Mokyr and Stein, 1997) suggest. On the other hand, countries’ economic performance remained at low levels partly as a consequence of two world wars and the great depression.
Taking this context as a point of departure, I develop in this paper a composite indicator drawing on microeconomic theory in line with the approach taken in the influential study by Jones and Klenow (2011), and apply it in a comparative framework to the first half of the 20th century for a large number of countries in Europe. With this indicator I am able to overcome the weighting problem that exists in many studies that draw on variants of the Human Development Index or factor analysis. Finally, the purpose of this indicator is not only to account for health in a welfare indicator, but also to shed light on the mechanisms behind the impressive and partly unequal rise in living standards in European countries during the period 1900-1950.
Fogel, R. W. (2004): The Escape from Hunger and Premature Death, 1700-2100. Europe, America, and the Third World. Cambridge: Cambridge University Press.
Hickson, K. J. (2009): The value of tuberculosis elimination and progress in tuberculosis control in twentieth-century England and Wales. International Journal of Tuberculosis and Lung Disease, 13, Nr. 9, 1061–1067.
Jones, C. I and Klenow, P. J (2011): Beyond GDP? Welfare across countries and time. NBER Working Paper Series - Working Paper 16352 .
Mokyr, J. and Stein, R. (1997): Science, Health, and Household Technology: The Effect of the Pasteur Revolution on Consumer Demand. In Bresnahan, T. F. and Gordon, R. J., editors: The Economics of New Goods. Chicago: University of Chicago Press, 143–200.
Murphy, K. M. and Topel, R. H. (2006): The Value of Health and Longevity. Journal of Political Economy, 114, Nr. 5, 871–904.
Riley, J. C. (2005): Estimates of Regional and Global Life Expectancy, 1800-2001. Population and Development Review, 31, Nr. 3, 537–543.
Stiglitz, Joseph E., Sen, Amartya and Fitoussi, Jean-Paul (2009): Report by the Commission on the Measurement of Economic Performance and Social Progress., Technical Report.
More information about Daniel Gallardo Albarran can be found here.