Download measuring the standard of living

IGCSE Economics
MEASURING ECONOMIC DEVELOPMENT AND THE STANDARD OF LIVING
The standard of living in a country is traditionally measured by real national income
per capita. This is found that dividing real national income (GDP or GNP) by the total
population. When categorising different countries we often make the following
distinctions:
High income countries Incomes above 9,500$
Middle Income countries: Between 750-9500
Low Income countries: Below 750
(all figures GNP per capita 2002 UN HDR)
However real GDP per capita does have some other limitations when assessing the
standard of living, such as:
Differences in living costs between countries
Adjustments can also be made for variations in price levels and the average cost of
living between countries.
Incomes and earnings may be very unequally distributed among the population and
rising national income can still be accompanied by rising relative poverty. (but a decline
in absolute poverty)
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. “If a
truckload of toxic chemicals spills somewhere, the money spent cleaning it up is added
to the GDP.
“If a forest is cut down, or farmland is turned into a car-park, GDP tells us that more
money flows around the economy and we mistakenly think this is progress” •Michael
Carley and Philippe Spapens (Friends of the Earth, 1997). So we actually need to
reassess economic growth, and consider that if it is at the cost of the environment, or
possibly at the cost of future growth (many resources are non renewable) then
economic growth may not necessarily be a positive thing
Leisure and working hours
Rising national output might have been achieved at the expense of leisure time if
workers are working longer hours
The black economy and non-monetised sectors
GDP figures might understate the true living standards because of the existence and
growth of the black economy. Also there is no guarantee that each country
measures national output and incomes with the same degree of accuracy.
Alternative indicators when measuring living standards
To come to a general judgement on living standards within an economy we can use a
range of alternative indicators
These could include:
Ownership of consumer durables such as televisions, dish washers, home computers
Estimates of pollution levels
Home ownership levels and other indicators of household wealth
SOCIAL WELFARE STATISTICS TO MEASURE THE QUALITY OF LIFE
 the number of patients per doctor - a measure of health provision in a
country
 hospital waiting lists for important operations
 the number of children per thousand of the population who die each year
(infant mortality rates)
 the average food intake per person (measured by average calorific intake)
 the proportion of the population that can read or write - literacy rates
 average educational attainment at different age levels
 crime rates
 divorce rates
These statistics should indicate what proportion of the population is enjoying a minimum
standard of living although perceptions of what is needed for a basic quality of life vary
widely.
Ultimately we should compare these with broader measures which attempt to look at
Economic Development, Sustainable Economic Development etc.
What is Economic Development and how is it measured?
Dudley Seers' (1969) definition of development is widely accepted.
Development occurs with: the reduction and elimination of poverty, inequality
and unemployment within a growing economy.
It is usually measured by the UN HDI index
How is this measured?
What different categories of countries are there, according to the UN HDI report (see
server for latest report)
What is Sustainable Development
"Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs." 1992 UN Rio
Declaration
“ensuring a better quality of life for everyone, now and for generations to come”.