Social Inequality Has an Even Larger Impact on Well-Being Than Income Inequality

BOSTON—High levels of social inequality—as reflected in differences in access to high-quality health care and education, for example—are a greater drag on a country’s well-being than is high-income inequality. The finding, based on analysis of data from BCG’s Sustainable Economic Development Assessment, is explored in a new report by Boston Consulting Group (BCG). The report, titled Measure Well-Being to Improve It: The 2019 Sustainable Economic Development Assessment, is being released today

Social inequality gets less attention than income inequality in debate and discussion among policymakers. However, BCG’s 2019 SEDA analysis finds a much stronger correlation between social equality and well-being than between income equality and well-being. The analysis also finds that people in countries with relatively high levels of social equality tend to have high levels of happiness.

“Governments today face massive challenges, including the disruption created by rapid technological advances,” says Joao Hrotko, a BCG partner and coauthor of the report. “Those factors will change what it takes for both public- and private-sector players to succeed in the next decade. Governments in particular must gain deep insight into the experiences of their citizens in order to address potentially overlooked problems, including social inequality.”

The Power of a Government Dashboard
The publication also examines how governments can capture important signals, such as those related to social inequality, by developing a comprehensive performance dashboard. Already there is great momentum in many countries, including New Zealand and the UK, to move beyond a focus on purely economic metrics such as GDP and orient policy and budget decisions around well-being. The next wave can be to

create a dashboard that captures a full view of country performance. Such a dashboard should include metrics for real per-capita GDP growth, objective well-being as reflected in an assessment like SEDA, and more subjective well-being measures such as those for overall happiness.

The report examines how such a three-pronged dashboard can reveal issues that would be missed if a single metric is employed. Country scores from the UN’s World Happiness Report, for example, typically align with well-being as reflected in a SEDA metric known as the wealth-to-well-being coefficient. The coefficient measures how effective a country is at converting its wealth into well-being for is citizens. But there are many countries with relatively high SEDA wealth-to-well-being scores that have lower-than-expected happiness scores. Only by studying the two metrics together can a country spot the troubling divergence—and then begin digging into the factors that account for it.

“Governments that focus on a single metric such as GDP will miss important signals related to problems in their nation,” says Enrique Rueda-Sabater, a BCG senior advisor and coauthor of the report. “The three-pronged approach we envision will create a clear picture of where they need to take action.”