Ask what production adds, what it costs and whether it can last.
GDP measures production, not a complete balance of welfare gains and losses. Unpaid household services are generally outside its production boundary, although some non-market output, such as government services, is included. More output may accompany longer working hours, pollution or resource depletion. Sustainable growth can continue without undermining future wellbeing; inclusive growth spreads opportunities and gains across society.
- Sustainable and inclusive
- Sustainable growth can continue without undermining future wellbeing. Inclusive growth spreads opportunities and gains across society; a rise in the average alone does not show this.
- What GDP leaves out
- GDP measures production. It does not automatically subtract lost leisure or environmental harm, and unpaid household services such as family care are generally outside its measure.
- Watch for this
- Some non-market production, including government services, is counted. Do not assume that everything provided without a direct charge is left out.
Explain the missing outcome
Composition
Investment and infrastructure may raise future consumption opportunities rather than current household consumption. Output used to repair damage may restore lost wellbeing rather than create an equivalent new gain.
Unpaid services
Moving similar care from unpaid household provision to a paid provider can change measured GDP more than actual care received. Do not infer that all unpriced activity is excluded.
Environment
Pollution can worsen health and reduce enjoyment of local amenities. A larger GDP does not automatically deduct these welfare costs.
Global conditions
Weaker foreign demand can affect domestic jobs and incomes. Higher imported energy prices can raise household costs. These external changes can affect the economy's ability to sustain living standards.
Worked example: Replacing unpaid care with paid care
A household buys childcare that a family member previously provided unpaid. Measured service production rises. The family member can now take paid work, but the family must pay the fee.
- A change from unpaid household care to market provision can raise measured GDP without an equal increase in the amount of care.
- Paid work can increase income and choice, while fees, travel time and care quality affect the net benefit.
- Evidence on those outcomes is needed before concluding that the family is better or worse off.
Watch out for this
GDP includes only things bought by households.
Government-provided services are also included, even when households do not pay a direct charge for them. GDP also estimates some output without a transaction, such as housing services from an owner-occupied home. Unpaid household care is a specific omission, not proof that all unpriced output is excluded.
Check your understanding
Output rises by extracting a resource faster than it can recover. Which question is most relevant to sustainability?
- Did the resource have a high sale price this year?
- Will the extraction path damage future productive capacity or wellbeing?
- Was GDP measured in a large currency unit?