Relative Welfare Index

AN INDEX IS AN organized list of indicators that point to the location of specific instances of the indicator. Or it may permit meaningful comparisons among widely varied populations. A welfare index is a statistical indicator that provides a representative number to indicate poverty. It may also be used as a poverty measure or a benchmark against which other poverty indicators can be measured. It is relative because it is compared with other statistical indicators.

Indexes are used in many economic areas. In the area of investments they provide guidance for investors. Economists also use the Consumer Price Index (CPI) to measure changes in the price of a market basket of goods. The index is composed of a basket of goods, but these are also priced relative to a “normal” year.

The Housing Price Index (HPI) is used to measure the cost of housing. This index tries to incorporate fluctuations in interest rates, season of the year, age and condition of housing, location, and other factors. For people who are working to invest in the poor as human [Page 910]capital, similar statistical measures for effectively investing in humans can be used. These indicators are not simply for providing relief, but providing growth to self-sufficiency is the investment goal.

The relative welfare index is a measure of the complex social, economic, and individual issues that are involved in measuring welfare. Two or more indexes may be combined to form an aggregated total index. For example, a health index may be combined with an environmental index. This could be an indicator that is predictive of the life expectancy of mothers, alcoholics, or others. The statistical use of indexes allows decision-makers to combine different sets of information in ways that provide mathematical answers to questions about the needs of the poor and the supplies that will be needed to meet their needs.

The use of indexes allows variables to be standardized in ways that allow for comparison across geographic areas or population groups. For example, a welfare index for a country would include not just food, but activities such as recreation that are important for human well-being.

The relative welfare index could be constructed as a standard index that allows all countries to be compared. It could also then show arithmetical means and other standard statistical descriptions of populations, but as they compare relative to each other. Equal weights for each variable are used so that the variables of economy, level of education, health, environment, leisure time, income, age, and many more factors can be compared from country to country with meaningful results rather than with mere anecdotal descriptions.

The use of a relative welfare index can show that a country like the United States may rank high in income, but may be much lower in other areas, so that other countries with lower incomes may actually have higher conditions of relative welfare as general well-being. This is rather like saying that while people in one area may be poorer when compared by income with people who are rich, the people who are poor may actually be much happier than the rich. Consequently the poor may have a higher relative welfare index since their general conditions of life bring greater satisfactions.

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