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The Forum > Article Comments > Economic growth or quality of life > Comments

Economic growth or quality of life : Comments

By Everald Compton, published 6/11/2013

GDP doesn't have to mean Growth Domestic Product; it could mean General Domestic Prosperity.

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Divergence
You said Sydney’s population growth is “much higher” than the national average; that’s clearly wrong.

Yes, I omitted some OECD countries. I used countries the IMF defines as “advanced” economies. Membership of the OECD is based on geography and politics as well as economic criteria, and it is voluntary. Singapore, for example, chooses not to join. The OECD includes several countries that the IMF considers not to be “advanced” (Hungary, Turkey, Chile, Poland, Mexico) and excludes several the IMF thinks are “advanced” (Hong Kong, Taiwan, San Marino, Singapore, Malta, Cyprus). I believe the IMF criteria provide a more accurate and impartial definition of advanced economies than the OECD’s membership.

Of the IMF’s 35 “advanced” economies, I excluded San Marino (no data) and the 11 countries with per capita GDP of under US$30,000 (Estonia, Slovak Republic, Czech Republic, Portugal, Taiwan, Malta, Greece, Slovenia, Korea, Cyprus, Spain). These countries’ per capita GDP is less than half of Australia’s. They also include a large number of former communist countries who were in transition in the 1990s hand have sunce joined the EU; the worst casualties of the GFC (Spain, Greece); and a couple of newly industrialised Asian economies. These factors, in my view, have dominated their recent economic histories in ways that make them unsuitable comparators.

I used 23 countries. Your earlier post used just 5 examples, if you recall.

The chart shows “the share of each country’s 10th percentile earnings relative to the 10th percentile earnings in the United States”. This is not an absolute measure; it compares the SHARE of earnings accruing to the lowest-paid 10% of workers in each country.

I did not say inequality makes people better off; I said it is possible that high migration may raise both per capita incomes and inequality. Beware the common cause fallacy:

http://www.nizkor.org/features/fallacies/ignoring-a-common-cause.html

I’m not in the least surprised by Colebatch’s data; they confirm that skill shortages make migration necessary for Australia. Beware the “lump of labour” fallacy:

http://en.wikipedia.org/wiki/Lump_of_labour_fallacy

The idea is fanciful that, without migration, jobs growth would be the same but all those jobs would go to native Aussies.
Posted by Rhian, Tuesday, 12 November 2013 8:25:30 PM
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Rhian,

The OECD has strict criteria for membership. It doesn't just take anyone who wants to join. The half of Australia's GDP per capita figure is arbitrary. See these graphs on GDP per capita and happiness

http://filipspagnoli.wordpress.com/stats-on-human-rights/statistics-on-gross-domestic-product-correlations/#11

The only way to get a straight line through the data is by using a logarithmic scale. In other words, as countries get richer, you have to use bigger and bigger increases in GDP per capita to get the same increment in happiness. Once you get to the level of the poorer OECD countries, there isn't that much difference in happiness between them and the rich countries, i.e., people mostly have enough wealth to prevent poverty from making them miserable, so it is fair to count them as developed countries.

If you look at that bar chart from State of Working America again, you will see that it compares gross earnings of the bottom 10% in a number of countries with gross earnings of the bottom 10% in the US. It has nothing to do with inequality within countries or income shares.

I never claimed that there would be just as many jobs without migrants. Tim Colebatch draws the opposite conclusion from you on the need for many skilled workers. Why would you bother training if you don't have to? What is wrong with training some of the people we already have who are stuck in unemployment or in miserable casualised jobs that often don't offer enough hours? What about the issue of wage depression discussed by Prof Borjas and mentioned in the Productivity Commission report into immigration?

Bottom line: I accept that there is a correlation between GDP per capita and population growth among the richest countries, although that does not imply causation and there are low growth countries such as Germany and Finland that have done very well. I stand by my statement that inequality is correlated with population growth, and there is evidence to suggest that the relationship is causal.
Posted by Divergence, Thursday, 14 November 2013 9:22:37 AM
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Divergence.
I never said the OECD has lax criteria for membership. I said membership is influenced by factors other than economic characteristics, and some rich countries choose not to join, and so its membership is a poorer dataset than the IMF’s “advanced economies” when trying to evaluate economic characteristics.

A look at the countries which are OECD members but not IMF “advanced economies”, shows this to be true. Mexico joined in 1994, the year it signed NAFTA. Turkey is strategically crucial to Europe and NATO. Hungary and Poland are among a group of former communist eastern European countries that joined the EU in the 1990s. These new members had lower living standards and different economic structures than the established ones. All EU members are also OECD members. The membership of both organisations changed significantly as a result.

My choice of a $30,000 was not cherry picking. It is reasonable to expect that the economic drivers of a country with per capita GDP of US$67,000 will be different to one with where it is US$17,000, even if both are “advanced” OECD members. Looking at the actual countries concerned – primarily former communist countries transitioning to market economies and newly industrialised Asian economies – I think their recent economic drivers are so obviously dissimilar to Australia that their inclusion in any regression analysis would invalidate the results.

more follows ...
Posted by Rhian, Thursday, 14 November 2013 8:51:53 PM
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continued ...

Re chart. The description “share of each country’s 10th percentile earnings” suggests to me the proportion of earnings by country accruing to the lowest 10% of workers. But even if you’re right, my point about common cause remains.

You ask what is wrong with training the people we have. The answer, of course, is nothing. But unless people are willing and able to do that training, the need for workers will go unmet. Employing someone on a 457 visa is far more expensive then employing a local. Businesses do it because they have to.

Re inequality. You admit that small changes in your sample change the validity of your results. My look at the same data shows no significant relationship.

I’m glad you agree on the correlation between growth in per capita GDP and population. The fact that there are exceptions, of course, does not rule out a causal relationship. As I think we all agree, other factors are generally far more important than population growth in shaping growth in living standards.

I refer you to your earlier comment: "If Pericles were correct, we would expect the developed countries with the most rapidly growing populations to experience the greatest growth in GDP per capita." Our regressions show that, on average, this is indeed the case.

Re happiness. Are you proposing happiness as the measure to define advanced economies, or have I misunderstood your point?
Posted by Rhian, Thursday, 14 November 2013 9:00:52 PM
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Rhian,

Surely, the economy exists to promote the welfare and happiness of the people, or it should.

There are two similar charts in State of Working America. One does refer to shares. The one I linked to is "Earnings at the 10th percentile in selected OECD countries relative to the United States, late 2000s". It just sets gross earnings of the bottom 10% equal to 100% for the US and then compared gross earnings of the bottom 10% in other countries relative to that. Nothing to do with inequality within countries.

From a textbook by James Ros "Development Theory and the Economics of Growth" (p. 295) "Less egalitarian societies have higher rates of population growth at any given level of income." (You can search with Google Books.) The developing countries with the fastest rate of population growth also tend to be the poorest. I think that the explanation for all the data from the different types of countries is that societies can add babies or migrants faster than the economy can create jobs for them, The oversupplied labour market depresses wages and working conditions, increasing the wealth and power of the elite, who can then use their influence to get other measures enacted that favour them at the expense of everyone else. American economist Dean Baker discusses many such issues in "The End of Loser Liberalism". In places like Norway, where the economy has been growing very quickly, it may be able to create enough jobs to absorb the population growth and stay equal. If the economy is dreadful, it may not be able to maintain enough jobs for a stable population, and you get inequality without population growth.

So far as the need for 457 visas and the like are concerned, what is theoretically supposed to happen and what does happen are two different things. See

http://mobile.abc.net.au/news/2013-11-14/investigation-into-claims-hungarian-workers-grossly-underpaid/5093100?pfm=sm&section=nsw

See Prof. Norm Matloff's article at the Economic Policy Institute

http://www.epi.org/publication/bp356-foreign-students-best-brightest-immigration-policy/

See also this video from Youtube, where some lawyers discuss strategies for not hiring qualified Americans so that jobs can be offered to migrants

http://www.youtube.com/watch?v=TCbFEgFajG
Posted by Divergence, Friday, 15 November 2013 8:45:31 PM
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Rhian,

I accept that you haven't fiddled your numbers when you compared population growth rates with growth in GDP per capita, but disagree with your choice of countries. You have excluded countries that rank very high on the UN Human Development Index and thus should count as developed. You have also included countries with vast mineral wealth that only has to be divided among a small population and countries like Singapore that are city states. (You only left out Hong Kong and Luxembourg.) With a relatively small number of data points, as in my case, a single outlier can make a big difference, and Luxembourg is small. Without it, I was well over the r value for 5% significance (0.36 versus about 0.30).

The other question is what economic growth is for. You seem to just want to maximize it without being too concerned about how it is distributed. I am concerned that everyone has enough for a decent quality of life with some personal freedom and dignity, without trashing the environment. There is an interesting paper by I. Kubiszewski et al. that appeared in "Ecological Economics" this year. They compare GDP per capita, Genuine Progress Indicator (GPI) per person, Environmental Footprint per person, Biocapacity per person, and UN Human Development Index for 17 countries from 1950 to the present. They found that GDP and GPI increased more or less in parallel up until the late 1970s. Afterwards, GDP continued to increase while GPI stagnated or fell. The only exception where GDP and GPI continued to go up together was Japan. In other words, for the other countries, including Australia, the benefits from economic growth are cancelled out by negative effects on other aspects of quality of life and on the environment.

http://www.academia.edu/3636103/Beyond_GDP_Measuring_and_Achieving_Global_Genuine_Progress
Posted by Divergence, Saturday, 16 November 2013 12:18:18 PM
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