Intertemporal Welfare Dynamics

This paper examines welfare through time. Too often trends in aggregate welfare statistics – such as growth in mean welfare in a population, and changes in inequality in welfare levels – have been taken to equal changes in individual welfare over time. This would characterise, for example, most welfare analyses of macroeconomic structural adjustment and stabilisation in developing countries during the heated debates of the 1980s. Also persistently high inequality or poverty have been taken to demonstrate low mobility, and unequal socio-economic opportunities. In other research, welfare variations across people have been used to address questions which are really about welfare variations through time – the worst of these are ‘poverty probits’ which crudely correlate socio-economic characteristics to poverty status observed in a crosssection. 2 Such studies treat people as having no personal history – the welfare status of a person is ahistorical, seen in a snapshot moment. Key policy debates, such as the links between poverty, growth and inequality, frequently have ignored mobility even though quite different social choices may be present: is it better to have a minority permanently in poverty (low poverty, low mobility), or a majority frequently in and out of poverty (high poverty, high mobility)? Do clear policy instruments even exist to present such a choice in the first place? And where rising inequality “penalises” economic growth in its welfare impact, does rising mobility “forgive” rising inequality? If so, the quality of economic growth should not only consider distribution neutrality [UNDP 1996], but also mobility neutrality. The welfare costs of vulnerability, risk and insecurity often have been left out, as have the welfare benefits of socio-economic opportunity. Both over the life-course, and over much shorter timeframes, welfare is subject to intertemporal variations in ways which are not captured by trends in mean welfare in the population or changes in inequality, and which are difficult to assess within cross-sectional samples of people.