Under Alternative 1, the scaled value of the overall Index of Economic Well- being for Canada was 0.646 in 2008, up from 0.435 in 1981 (Chart 51 and Table 7). Recall that the baseline estimates for 1981 and 2008 were 0.439 and 0.605, respectively. Shifting weight from wealth to consumption raised the level of the Index in 2008 by 0.041 points (or 6.3 per cent), and increased the absolute growth of the Index over the 1981-2008 period from 0.167 points to 0.210 points. These changes reflect the fact that the consumption domain index experienced strong growth over the period and was substantially greater in value than the other domain indices in 2008 (Chart 5). Since consumption grew faster than wealth over the period (0.567 points versus 0.274 points),
0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 In d ex o f E con o m ic Wel l- b ein g IEWB Levels Baseline Alternative 1 Alternative 2 Alternative 3
Source: Table 1 and Appendix Tables 31-33
60 80 100 120 140 160 180 In d ex (n o rm aliz ed to 100 in 1981) Index (1981=100) Baseline Alternative 1 Alternative 2 Alternative 3
and since the scaled values of consumption for Canada exceed the scaled values of wealth (0.837 versus 0.567 in 2008),39 it is unsurprising that shifting weight from the wealth domain to the current consumption domain increases both the value and the growth rate of the overall Index. The more one discounts wealth (i.e. future consumption) compared to present consumption (or, the greater is the evaluator‟s subjective rate of time
preference), the more positively one will evaluate economic well-being over this period.
ii. Trends in the provinces
The change in weighting (that is, giving greater weight to consumption at the expense of wealth) has no effect on the ranking of provinces with the highest and lowest Index values in 2008. As before, Alberta and Newfoundland had the highest 2008 overall Index values, at 0.776 and 0.690, respectively (Table 7). These values are almost
identical to the values of 0.773 and 0.681 that were computed for Alberta and Newfoundland under the baseline weighting scheme. Quebec and New Brunswick remain the two provinces with the lowest Index values in 2008; their overall Index values were 0.588 and 0.618. In these cases, the change in weights does make a non-negligible impact on the magnitudes of the Index; the baseline estimates were 0.541 and 0.572 for Quebec and New Brunswick, respectively. This reflects the fact that Alberta and Newfoundland have similar scaled values for consumption and wealth, whereas consumption is significantly larger than wealth (in scaled terms) in Quebec and New Brunswick.
The ranking of the remaining provinces by IEWB level does change somewhat under the alternative weights (Exhibit 5). The most noteworthy change is that Nova Scotia‟s 2008 Index value increases from 0.588 to 0.663 when the weight on
consumption is increased; this raises Nova Scotia‟s ranking from sixth to fourth among all provinces in terms of overall well-being. Nova Scotia‟s scaled consumption value is slightly above the Canadian average, while its scaled wealth value is far below average. Shifting weight from wealth to consumption is therefore particularly beneficial to this province‟s measured well-being.
Over the 1981-2008 period, every province experienced faster growth in
measured well-being under Alternative 1 than under the baseline weighting scheme. This reflects the strong growth of consumption relative to wealth in every part of Canada. However, the differences in the growth of the baseline Index and the Alternative 1 Index are not large in magnitude. As noted above, the growth of the Index for Canada as a whole over the 1981-2008 period was 0.167 points under the baseline weights and 0.210 points under Alternative 1 – a difference of just 0.044 points in growth. At the provincial level, the largest difference in growth over the period was 0.062 points in Nova Scotia. In
39
Note that the actual dollar value of per-capita wealth is larger than the dollar value of per-capita consumption flows. The reverse is true of the scaled values because of the linear scaling technique; the range of values for wealth is larger than the range of values for consumption because there is greater cross-provincial variation in wealth than in
Exhibit 5: Ranking of Provinces According to Economic Well-being under Baseline and Alternative Weights
Level, 2008
Baseline Alternative 1 Alternative 2 Alternative 3
Highest well-being Alberta Alberta Alberta Alberta Newfoundland Newfoundland Newfoundland Newfoundland Saskatchewan Saskatchewan British
Columbia
Prince Edward Island
Canada Nova Scotia Saskatchewan Saskatchewan Prince Edward
Island
Prince Edward Island
Canada Nova Scotia
British Columbia Ontario Ontario New Brunswick Nova Scotia Canada Manitoba Canada
Ontario British Columbia Nova Scotia Ontario Manitoba Manitoba Quebec Manitoba
New Brunswick New Brunswick New Brunswick British Columbia Lowest well-being Quebec Quebec Prince Edward
Island
Quebec
Growth Rate, 1981-2008
Baseline Alternative 1 Alternative 2 Alternative 3
Fastest IEWB growth
Newfoundland Newfoundland Newfoundland Newfoundland
Manitoba Manitoba Prince Edward Island
Manitoba
New Brunswick New Brunswick New Brunswick Prince Edward Island
Quebec Quebec Quebec Quebec Prince Edward
Island
Prince Edward Island
Nova Scotia New Brunswick
Canada Nova Scotia Manitoba Saskatchewan Nova Scotia Canada Canada Canada Saskatchewan Saskatchewan Ontario Alberta British Columbia Ontario British
Columbia
Nova Scotia
Ontario British Columbia Saskatchewan British Columbia Slowest IEWB
growth
Alberta Alberta Alberta Ontario
terms of cross-provincial comparisons, however, Alternative 1 changes almost nothing from the baseline results; the ranking of the provinces according to IEWB growth over the 1981-2008 period is nearly identical under both weighting schemes, with
Newfoundland experiencing the fastest growth and Alberta the slowest (Exhibit 5). Note that under both weighting schemes, the provinces with the lowest Index levels in 2008 (Quebec, New Brunswick, and Manitoba) were among the fastest-growing over the 1981- 2008 period.
iii. Summary
Overall, the results are mostly robust to the change from the baseline weights to the Alternative 1 weights. Aside from the improvement in the measured well-being of Nova Scotians, the cross-provincial patterns are essentially the same under the two weighting schemes. A final noteworthy effect of the change is that the annual growth rate of the Index of Economic Well-being for Canada under the Alternative 1 weights is 1.47 per cent per year over 1981-2008, which is much closer to the annual growth rate of per-capita GDP (unscaled) over the period. The consumption domain is the main driver of the Index and consumption is itself a large component of GDP, so it is no surprise that placing greater weight on the consumption domain brings the Index more in line with per-capita GDP. This reinforces the idea that per-capita GDP growth can be a proximate indicator of growth in well-being if one places significant value on per-capita
consumption relative to other dimensions of well-being. Or, put another way: the more one values things other than consumption, the less appropriate is per-capita GDP as an indicator of economic well-being.