Welfare in Slovakia and the EU — an alternative to GDP per capita

GDP per capita is used as the basic measure of economic development and prosperity across the world. However, it is a limited measure of living standards, focussed on capturing changes in economic output per person and neglecting many things central to quality of life. Several alternative approaches to assessing quality of life have been proposed such as the OECD Better Life Index (2017), the UN Human Development Index (HDI), or Gross National Happiness. One notable contribution is the consumption equivalent welfare measure introduced by Jones and Klenow (2016). Our results from using this measure suggest that the quality of life in most EU countries is higher than suggested by GDP per capita relative to the U.S. The primary reasons for this are that, particularly compared to the U.S., countries in the EU tend to have lower income inequality and longer life expectancy. Implementing this measure for Slovakia, our results indicate that relative welfare is approximately 10 percentage points higher in Slovakia than GDP per capita would suggest. In the medium run, consumption equivalent welfare in Slovakia grew faster than income from pre-crisis levels. Improvements in the quality of living in Slovakia over time have been driven by an increase in life expectancy and consumption, as well as consistently low levels of income inequality. Nevertheless, living standards in Slovakia are still low in comparison to advanced EU economies and the U.S. Lower life expectancy, which reflects the quality of health of the population, accounts for most of the difference in welfare in comparison to these advanced economies.