Economic Growth and Material Well-being: An Attempt at Reconciliation

Abstract

The measurement of well-being and its evolution is an open question. A suggested indicator, which is limited to the measure of material well-being, is based on taking into account the “relative” nature of a generation’s level of well-being and the “absolute” impact of lifetime income growth. The assumption is that each individual has a level of well-being at birth that is proportional to the relative income available to his or her family. Subsequently, the well-being of each individual evolves as the real income available to him. In the long term, this indicator depends on the distribution of income (a reduction in inequality increases social welfare) and the growth rate of the economy, with rising per capita income leading to a sustainable increase in well-being, since lifelong generations enjoy higher well-being. It also evolves positively with lifespan and aging, as the share of generations that have benefited from increased well-being over life is increasing. The calculation of this indicator for France and the United States from 1950 to 2019 shows that well-being in France increased very sharply from the 1950s to the 1970s before stagnating since the 1980s. In the United States, the evolution of well-being has been much more consistent. Since the 2008 crisis, aggregate well-being has tended to decline in both countries as growth decline and inequality increase. Generations born after 1970 are much less favourable than previous generations, with the difference in well-being at the same age being particularly marked for those born since 1980.