Definition of the Standard of Living
The standard of living is different from other measures of quality of life. These often include non-material characteristics, such as relationships, freedom, and satisfaction. Indices that attempt to measure quality of life also include the material standard of living measurement. Standard of living is narrowly focused on the value of goods and services produced and consumed.
How the Standard of Living Is Measured
The generally accepted measure of the standard of living is GDP per capita. This is a nation’s gross domestic product divided by its population. The GDP is the total output of goods and services produced in a year by everyone within the country’s borders. Real GDP per capita removes the effects of inflation or price increases. Real GDP is a better measure of the standard of living than nominal GDP. A country that produces a lot will be able to pay higher wages. That means its residents can afford to buy more of its plentiful production.
Flaws in GDP per Capita as Measure of Standard of Living
GDP per capita doesn’t count unpaid work. Unpaid work includes critical activities like in-home child or elder care, volunteer activities, and housework. Many activities that are included in GDP couldn’t occur if there weren’t these support activities. GDP per capita doesn’t effectively measure pollution, safety, and health. For example, the government may encourage the development of an industry that spews chemicals as part of its manufacturing process. Elected officials only see the jobs created, and the standard of living measurement only counts the value of the goods produced. The costs of polluted air and water may not be recognizable until decades later. Finally, the GDP per capita measurement assumes that production, and its rewards, are divided equally among everyone. That’s because it’s an average and ignores income inequality. It can report a high standard of living for a country where only a few people at the top enjoy the wealth.
Factors That Determine a Nation’s Standard of Living
The factors that affect the standard of living are the same ones that affect GDP. The most important is consumer spending, which makes up 68% of the U.S. economy. When people buy groceries, gasoline, and clothing, their lives improve. That activity helps businesses, which then hire more employees. The other three components of GDP are business investment, government spending, and net exports. Business investment includes new plants and equipment, real estate, and products. If companies are investing, the economy improves. The same is true of government spending. When governments build roads, bridges, and public transit, its citizens benefit from a higher standard of living. That’s especially true for direct payments, such as Social Security and Medicare. People’s lives are better because of these benefits. Net exports improve a country’s standard of living in less obvious ways. If a country exports more than it imports, it creates jobs.
Other Ways to Measure Quality of Life
The World Bank uses a very similar measure called Gross National Income per person (GNI per capita). It measures the level of income paid to all the country’s citizens, no matter where they are in the world. GDP per capita only measures the income paid to those residing in the country’s borders. GNI per capita can raise a country’s standard of living. That’s because many citizens live in other countries to get better jobs. They also remit part of their wages back to their families at home. The United Nations uses the Human Development Index. It includes the following four data points: The U.N. uses the index to question national priorities. It asks how two countries with similar GNIs per capita have different human development scores. Gallup’s Standard of Living Index is a U.S. survey. It asks Americans if they are satisfied with their current standard of living. It asks them whether it’s getting better or worse. This is an extremely subjective measure, since it’s an attitudinal measurement.
Countries With the Highest Standard of Living
The standard of living by country depends on who’s doing the measuring and how it’s being measured. The CIA World Factbook ranks every country in the world using GDP per capita. For 2017 the rankings revealed:
The highest was Luxembourg, at $117,846.1 per person.The lowest was Burundi, at $771.2 per capita.The United States ranked 11th at $63,206.5 per capita.
The World Bank’s ranking uses gross national income per capita:
Macao SAR, China is highest at $117,450 per capita.Burundi is the lowest at $780 per capita.The United States is 11th at $64,210 per capita.
The U.N.’s Human Development Index offers a different result:
Norway is highest, with a score of 0.957.Niger is the lowest with a score of just 0.394.The United States is 17th, at 0.926.
