EU Country Rankings’ Sensitivity to the Choice of Welfare Indicators

Ranking of countries with respect to some welfare measure is highly popular and takes places with high frequency. Ranking of a country can change over time given the same welfare measure is applied. Rankings can also change depending on which welfare measure is applied in a given year. To what extent do we see ranking changes and which existing welfare measures best captures an unobserved, yet existing, notion of welfare in society? To investigate this we apply seven welfare indicators for fifteen EU countries covering the years from 2005 until 2011. The results indicate that rankings are particularly volatile for countries in the middle of the ranking distribution, while countries with either high or low welfare generally have lower volatility. A multidimensional poverty index has the highest correlation with the latent welfare measure. It is concluded that the observed rankings do not tell a coherent story, but often point in very different directions, although welfare indicators are often highly correlated. The change in indicator ranks is much less correlated.