Further Discussion of Measurement for Core Targets 1 & 2

Archived Topic Box from the 2003 Third Annual Benchmark Report

Two years ago, the Progress Board selected "Core Target" metrics for the critically important standards of economic growth and standard of living. For economic growth, the annual growth rate of real GDP per capita was chosen, while for standard of living we consider the level of real personal disposable income per capita (or after-tax income per person). The key rationale for selecting these measures was to highlight the top-line or overall improvement in broad provincial economic performance relative to other provinces, expressed on a per person basis. Our reporting also includes comparisons on a supplemental basis, looking at the US Pacific Northwest states and OECD countries.

In addition to growth in real GDP per capita it is often illustrative to look at the growth in real GDP. Consider two jurisdictions that have identical real GDP growth rates but different population growth rates; they will have different real GDP per capita growth rates. In such a case, it will be revealing to look at the reasons for different population growth rates as this will drive the difference in growth in real GDP per capita. In light of this we have added a topic box on population changes in BC (see page 61).

Another way of looking at the rather qualitative notion of standard of living in quantitative terms may involve consideration of both real GDP per capita and real personal disposable income per capita. Of the two benchmarks, real GDP per capita is the higher profile of the two measures of standard of living, although it – like many measures – can be challenged on a number of grounds. Viewed in isolation, neither real GDP per capita, nor real personal disposable income per capita account for income distribution and other factors such as environment, health and social outcome performance which is part of the reason the Progress Board includes such measures elsewhere in our reporting structure. A further possible criticism of real personal disposable income per capita is that differences between two jurisdictions may reflect only different levels of taxation, which in turn, may reflect the provision of varying levels of public services in the two jurisdictions – health care, education and social services for example.

Consider two jurisdictions with the same real GDP per capita where one jurisdiction has a lower level of real personal income per capita than another jurisdiction, which is due to it having a higher overall level of taxation. If these higher taxes are used to provide a higher level of public services then it is possible that the qualitative "standard of living" will be equal in the two jurisdictions even though the quantitative "standard of living" (as measured by real personal disposable income per capita) will show a lower standard of living in the jurisdiction with the higher level of taxation. As a counter to this argument there is evidence that as the level of taxation (and the size of government) grows, tax dollars are more likely to be spent on low priority areas. Should this prove to be relevant in the case of the two jurisdictions considered above, the assumption that the greater tax take in one jurisdiction is spent entirely on useful public services may not hold. (See page 58 for more information on the size of government).

In the final analysis, there are a variety of nuances in the selection of metrics in any performance measurement or benchmarking framework. In highlighting some of the more subtle measurement issues relating to two of the Progress Board's key economic targets, we are reminded that a holistic assessment of "progress" involves considering a broad array of metrics as the Board attempts in the balance of this report.

Source: "Provincial Standards of Living: Some Surprising Comparisons", Dale Orr, Global Insight, 2002; follow- up correspondence with Dale Orr.