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3.1<br />
The concepts of welfare<br />
Kaie Kerem, Kaire Põder<br />
Welfare, as a concept, can be operationalized narrowly or<br />
more broadly. The narrower conceptualization is driven<br />
by personal perspectives, i.e. how we assess their situations<br />
(subjective well-being). This assessment depends<br />
on people’s circumstances and personality traits, as well<br />
as the bases of comparisons. The latter indicates that we<br />
tend to compare our situation with others, and perceive<br />
ourselves to be happy, when others are worse off, in<br />
comparison to us. The broader concept of welfare takes<br />
into account the state’s role as the mediator of a person’s<br />
welfare. In this case, the role of the state is measured<br />
based on its function as the provider of public services,<br />
especially as the creator of a sense of security, and as the<br />
guarantor of a minimal standard of living.<br />
Our aim is to introduce the theoretical backgrounds<br />
for both the narrower and broader approaches,<br />
and to reveal the interconnections between them. By<br />
applying individual welfare measure the problems start<br />
with underlying theoretical and empirical groundings<br />
Figure 3.1.1<br />
Satisfaction and wealth (wealth index is based on PPP<br />
per capita GDP, (EU27=100, satisfaction index is measured<br />
as the % of respondents who are “very satisfied”<br />
or “rather satisfied” with their lives.)<br />
Satisfaction<br />
100<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
ROU<br />
BUL<br />
LVA<br />
LTU<br />
POL<br />
EST<br />
HUN<br />
PRT<br />
CZE<br />
SLO<br />
MLT<br />
SVK<br />
CYP<br />
GRC<br />
BEL<br />
FRA<br />
ESP<br />
ITA<br />
GBR<br />
SWE<br />
NED<br />
DEN<br />
FIN<br />
40 60 80 100 120<br />
Wealth<br />
DEU<br />
IRL<br />
AUT<br />
Here and hereafter, the areas shown in blue indicate a 95% level<br />
of confidence.<br />
Sources: Eurostat (2011) and Eurobarometer 76 (2011), the<br />
authors’ calculations. Comment: Luxembourg was left out, since<br />
its income level is more than 50% higher than the EU average.<br />
of the concepts. In many sub-disciplines within social<br />
sciences historical and empirical evolution of the welfare<br />
measures don’t coincide, while mostly theoretical<br />
approach is prevalent in economics and mostly typology-building<br />
in political science. The increasing volume<br />
of national accounting time series, and the surveys based<br />
on micro-evidence of individual attitudes and behaviour,<br />
enable the modelling of individual welfare or running<br />
of comparative studies on social expenditures by states.<br />
One of the grounding functions of the contemporary<br />
state is the redistribution of goods (such as education<br />
or commonitures vel analysisow to measure?essed level<br />
of satisfaction.s by states.nu doktoritöö sissejuhatavast<br />
peatükistsocial protection) against the risks that are<br />
prevalent in market oriented systems. These redistributing<br />
states, which are focused on ensuring equal opportunities,<br />
are called welfare states.<br />
This chapter is structured as follows. First, we<br />
introduce the theoretical concepts behind welfare measurement.<br />
We operationalize the concept of welfare, and<br />
show the associations between individual satisfaction<br />
and statistical macro-indicators. In the second part, we<br />
introduce the recent welfare developments in Estonia concentrating<br />
on the period after the 2008 financial crisis,<br />
indicate the comparative perspective, and discuss future<br />
trends. In the third section, we examine the associations<br />
between the welfare regimes and individual self-assessed<br />
level of satisfaction.<br />
3.1.1<br />
Individual well-being and state level<br />
analysis: how to measure?<br />
Using consumption expenditures or income as welfare<br />
indicators is common, since historically poverty and<br />
low standards of living were the main challenges that<br />
were confronted. In mainstream economics, well-being<br />
is defined as the utility from consumption of certain<br />
bundles of goods, while later approaches also encompassed<br />
leisure. The concept of utility stresses the subjectivity<br />
of well-being, the utility functions depend on<br />
risk adverseness or inter-temporal preferences (patience)<br />
– for example, risk-averse and patient individuals are<br />
ready to shift consumption to the old age. However, others<br />
are more risk-loving, and prefer to consume today,<br />
rather than in the future. Therefore, it is imminent<br />
that under utility-based approaches people’s well-being<br />
measures cannot be aggregated into a uniform index,<br />
or indicator, which would adequately take account of<br />
the good characteristics of the individual utility functions.<br />
In addition, the critics who are against measuring<br />
subjective well-being (by surveys) indicate that the data<br />
can be trusted only if it depicts the information from<br />
106<br />
Estonian Human Development Report 2012/2013