Income-based Measures of Average Well-being

Abstract

Internation comparisons of average national incomes omit important information about leisure, home production, health, etc. They are also bedevilled by index number problems. This paper suggests ways of combining working hours and life-expectancy with income comparisons, and shows that the fixed-price indexes of real income, such as those in the Penn World Table, substantially understate the income gaps between the poorest and richest countries.Keywords: income comparisons, well-being, life expectancy, exchange rate bias, Geary-Khamis bias, the Afriat index