"What is the evidence, and what does it mean?" Bill James
A lot of people use "GDP per person" as a "standard of living" measure, and "GDP per hour worked" as a "productivity" measure. Of course, "GDP" is not a perfect measure of the value of what a country produces, and averaging over all people can mask differing levels of inequality. In practice, though, it may be that the flaws of the GDP measure are similar across countries, so the relative values of "GDP per person" may still be meaningful.
When looking at the "GDP per person" numbers, some people look at the table below and conclude that Canada (and the U.S.) lag behind countries such as Japan and Germany in standard of living (and in productivity, if hours worked per person is similar across countries):
GDP per head, 1990, (U.S. Dollars, GDP converted using Exchange Rates)
(1) Switzerland $33108, (2) Sweden $26639, (3) Japan $23822,
(4) Germany $23532, (5) USA $21448, (6) Canada $21412,
(7) France $21110
Source: The Economist Guide to Economic Indicators, p. 44
(its source: OECD)
The flaw of the above table is that GDP is converted using exchange rates. So if, say, the Canadian dollar falls by 10% vs the U.S. dollar, Canada's "standard of living" will supposedly have fallen 10%, which of course is not the case, since much less than half of what Canadians buy is imported from the U.S. The proper way to convert the GDP numbers is not to use exchange rates, but something called a purchasing power parity, which is the rate at which a typical basket of goods and services in two countries costs the same. The Economist Guide to Economic Indicators writes "This is not easy to calculate accurately, but some intergovernmental agencies such as the OECD produce estimates" (p. 36). Here are the "GDP per person" numbers converted using PPP's:
GDP per head, 1990, (U.S. Dollars, GDP converted using PPP)
(1) USA $21448, (2) Switzerland $21042, (3) Canada $19121,
(4) Germany $18298, (5) Japan $17630, (6) France $17423,
(7) Sweden $16824, (8) Belgium $16354, (9) Italy $16029,
(10) Australia $15919, (11) Holland $15789, (12) UK $15711
Source: The Economist Guide to Economic Indicators, p. 44
(its source: OECD)
It turns out that prices are a lot higher in countries like Switzerland, Japan and Germany than they are in Canada or the U.S. So converting using purchasing power parities suggests that the U.S. has the highest standard of living in the world (well, at least of the countries listed), Canada has one of the highest, and Japan's and Germany's productivity has been overrated.
These numbers are now more than 6 years old. Canada has had a recession and some slow growth years since 1990, but so have most of the other countries listed. If I get a chance some time I'll look up more up-to-date numbers.
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Last Updated: 1997 July 20
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