Measures and indicators of comparative living standards

What is the meaning of ‘standard of living’?

It is not an easy term to define. However, it can be said as the ‘Level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area’. However, there are other aspects to consider when we talk about standard of living. In fact, standard of living is a measure of how well or happy are the people living in their country.

Real GDP per capita

To calculate this, we take the value of all goods and services produced within a country’s borders, adjust for inflation, and divide by the total population. We can say that real income or output is a good indicator of how well the economy is doing. And that if more goods and services are produced, more goods and services are enjoyed and thus more wants are satisfied (Satisfaction of wants is the basic study of Economics). However, there are short-comings of using GDP.

Inequalities of income and wealth
GDP figures on their own do not show the distribution of income and the uneven spread of financial wealth. Incomes and earnings may be very unequally distributed among the population and rising national prosperity can still be accompanied by rising relative poverty.

Unpaid work
Real GDP per capita doesn’t acknowledge the value of housework, in-home child care, in-home elder care, volunteer work, and community service.

Economic growth and externalities
Rising national output might have been accompanied by an increase in pollution and other negative externalities which have a negative effect on economic welfare. Output figures also tell us little about the quality of goods and services produced.

Changes in the quality of life
Real GDP per capita doesn’t fully account for the value of things like clean air, clean water, more leisure time,
and increased life expectancy; nor does it fully account for the cost of such undesirable changes as increased traffic congestion or loss of open space.

Human Development Index

The Human Development Index (commonly abbreviated HDI) is a summary of human development around the world and implies whether a country is developed, still developing, or underdeveloped. Human Development Index also shows how appealing and attractive a country is as a place to live. It is measured based on factors such as life expectancy, education, literacy, gross domestic product per capita. The results of the HDI are published in the Human Development Report, which is commissioned by the United Nations Development Program (UNDP) and is written by scholars, those who study world development and members of the Human Development Report Office of the UNDP.

Today, the HDI examines three basic dimensions to measure a country’s growth and achievements in human development.

– The first of these is health for the country’s people. This is measured by life expectancy at birth and those with higher life expectancies rank higher than those with lower life expectancies.

– The second dimension measured in the HDI is a country’s overall knowledge level as measured by the adult literacy rate combined with the gross enrollment ratios of students in primary school through the university level.

– The third and final dimension in the HDI is a country’s standard of living. Those with higher standards of living rank higher than those with lower standards of living. This dimension is measured with the gross national income (GNI) per capita adjusted to purchasing power parity standard (PPP).

The UNDP classifies each country into one of three development bins:

– Low human development for HDI scores between 0.0 and 0.5,
– Medium human development for HDI scores between 0.5 and 0.8
– High human development for HDI scores between 0.8 and 1.0.

Limitations of the Human Development Index

– The HDI notably fails to take account of qualitative factors, such as cultural identity and political freedoms (human security, gender opportunities and human rights for example).

– Many argue that the HDI should become more human-centred and expanded to include more dimensions, ranging from gender equity to environmental biodiversity

– The GNP/GNI per capita figure – and consequently the HDI figure – takes no account of income distribution. If income is unevenly distributed, then GNP/GNI per capita will be an inaccurate measure of the monetary well-being of the people. Inequitable development is not human development.

– PPP values change very quickly and are likely to be inaccurate or misleading.

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