Metrics
The Manage what you Measure

Measuring What Matters ... and GDP does not do it.

Burgess COMMENTARY
The author of this essay is a student of economics ... and it shows. Sadly it lacks much insight into the issues that arise because of the way the available metrics are being used to manage the economic system, and how the metrics and the system need to be rethought and rebuilt in order to address the prevailing issues.
This is a huge problem ... young economists are learning from older economists ... but there is little of scientific method in the process ... and so much of what is being taught is theory with rather little utility in the real world.
Yes ... social values are very very important ... but how may they be measured in a practical way. The TrueValueMetrics initiative is attempting to answer this question. Stay tuned. Check out the website as the solution emerges!
Peter Burgess

Measuring What Matters


Measuring What Matters Photo: Shutterstock / Solomia Malovana

In a report to Congress in 1934, Nobel prize-winning economist Simon Kuznet warned that “[t]he welfare of a nation can scarcely be inferred from a measurement of national income.” Kuznet, one of the architects behind what we know today as the Gross Domestic Product (GDP), was onto something: that the dollars we earn are hardly a barometer of societal fitness. Yet despite Kuznet’s warning, policy proposals today are frequently evaluated on the basis of their impact on the GDP, or, in other words, the extent to which they’re able to stimulate growth. As a result, items covered by this measure of national income get plenty of attention, while those not within this rigid framework often fall by the wayside.

Case in point: unpaid care work. The GDP attempts to measure the market value of all final goods and services produced in an economy, like personal expenses on food and rent, government spending, and investments. It doesn’t, however, measure the beneficial but uncompensated work done within households. On a typical day, more than a quarter of Americans provide unpaid care work in the form of parenting or caring for a sick or aging relative. This work is indispensable to the individuals cared for, and it frees up the resources that power the paid economy. But since this unpaid care work, by definition, doesn’t enter any market, it’s considered valueless when calculating GDP. In fact, it often brings the measure down.

Consider, for instance, two women who stay at home to take care of their respective children. They don’t sell any goods or services, so this work doesn’t contribute to the national income. Suppose, now, that the mothers agree to pay each other to take care of the other’s child. Since these payments take place in a market, they add to the GDP and, therefore, are now considered to constitute growth. But considering that the work, resources used, and, likely, the standard of living for both families was the same in both scenarios, it seems dubious at best—and deeply misleading at worst—to say that welfare only increased in the child-swapping set-up.

The absurdity of this example gets at how dramatically our conclusions about the nation’s economic health would change if we found a way to put a value on unpaid care. According to a paper by the Bureau of Economic Analysis, if the United States included unpaid care work and other forms of household production in 2010 calculations of the GDP, the output measure would have risen 26 percent. It’d also make the past few decades of economic growth look lower because the rise of women entering the labor force shifted some of their care work from households to the market.

The absence of valuing unpaid care work also matters for comparing how countries are faring. Some countries, particularly in the developing world, depend more on unpaid care work. If this work isn’t captured and valued, any comparison of income levels across countries will be severely biased and unhelpful.

Fortunately, an increasing number of methods are cropping up to measure the important economic contributions of unpaid caregiving. Most techniques to capture and value unpaid care work rely on time-use surveys, which track how many hours each person in a household spends on various paid and unpaid activities, including caregiving. A common way to put a value on these hours is to use the cost it would take to pay someone to do any unpaid care work in a market. For child care, for instance, we could use the average hourly wage of child care workers and then multiply it by the number of hours spent on unpaid child care. Another tack is to look for employed individuals from similar demographics and apply similar levels of compensation for unpaid care work.

But does it really make sense, from an economic standpoint, to include unpaid care work in these kinds of measures?

Critics may argue that, since unpaid care work isn’t a marketed good, it should be considered outside of the mandate of the GDP. But it’s critical to keep in mind that what we measure matters for determining what policies policymakers are willing to propose. Policymakers are often evaluated on their ability to deliver improvements in certain objective measures, like jobs created. So as long as the GDP is used as a proxy for welfare, it’s key to complement it with a measure that tracks the important, ubiquitous measure of economic health in the broadest sense—including unpaid care work.

Finally, 80 years after Kuznet prodded us to consider measuring a country’s welfare as something more than just its income, his observation seems to be getting at least some traction at the national level. Former French President Nicolas Sarkozy, for instance, commissioned a report on how France’s GDP could be adjusted to include additional measures, including unpaid care work. Several countries and international organizations, including the Organisation for Economic Cooperation and Development, the British government, and several U.S. states, also are beginning to actively tether the GDP to other measures, such as the Better Life Index, that paint a fuller picture of what we, as a society, value.

Still, there’s a lot of work to be done. It’s important that Kuznet’s nobel remark become more than just a remark—it ought to become a central policy consideration for countries the world over.

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