CHAPTER 32
LIVING
STANDARDS
32. 1 INDICATORS OF LIVING
STANDARDS
32.2 COMPARING LIVING
STANDARDS AND INCOME
DISTRIBUTION
OBJECTIVE
• Describe indicators of living standards
• Discuss the advantages and disadvantages of real GDP
per head and HDI as indicators of living standards
• Explain how income and wealth inequality are
measured
• Analyse the reasons for differences in living standards
and income distribution within and between countries
32.1 INDICATORS OF LIVING STANDARDS
• Real GDP per head
GDP can be use as an indicator of living standards
It also needs to be adjusted for inflation so that real GDP per
head is calculated at constant prices
However, the indicator has a number of disadvantages,
including the following;
Not all economic activity is declared because of the existence of
a hidden, informal or underground economy.
Not all goods and services will go through a market, that is,
there will be no price attached to such products (ex; subsistence
agriculture)
It may be difficult to accurately measure the cost of certain
items of government spending, such as defence
Real GDP does not take into account the quality of what has
been produced
Real GDP per capita only focuses on material aspects. It is an
indicator of living standards, but not necessarily of quality of life
The level of literacy in a country may be low making it difficult to
obtain accurate data
THE HUMAN DEVELOPMENT INDEX (HDI)
• The Human Development Index (HDI) is broader indicator of living
standards in a country. It was established for the United Nations
Development Programme in 1990.
• HDI = an index used to measure human development using three
components, standards of living, health and education
• The HDI contains three elements;
Standard of living as measured by GNI (Gross National Income) per head at
purchasing power parity
Health as measured by life expectancy at birth
Education as measured by mean years of schooling and expected years of
schooling
Purchasing Power Parity – is the measurement of prices in different countries that
uses the prices of specific goods to compare the absolute purchasing power
• The advantages and disadvantages of the HDI
it focuses on three components of living standards rather than
just one and it is thus a broader indicator of living standards
It concentrates on too narrow a range of components
It does not take into account environmental aspects of
production and other components might be better, for
example, infant mortality might be preferable to life
expectancy
• Other indicators of living standards
Gender inequality index (GII) = a measure of gender
inequalities in terms of reproductive health, empowerment
and labour market participating
Happy life expectancy index (HLEI) = an index which
multiplies life expectancy by a happiness index
Gross national happiness = a measure of living standards
which includes a wide number of indicators including income,
psychological well being, education and ecological diversity
Genuine Progress Indicator (GPI) – a measure of living
standards which takes into account a variety of indicators
including income, leisure time, distribution of income and
environmental standards
31.2 COMPARING LIVING STANDARDS AND
INCOME
• DifferencesDISTRIBUTION
in living standards and income distribution within
countries (individuals)
The income distribution may be unequal where a large
number of people have inherited, rather than earned, income
and wealth
Some people earned a higher income than other because of
the type of work they do, especially when the income of
skilled workers is compared with that of unskilled workers, and
skilled workers may be concentrated in certain parts of a
country
Some people own their own businesses or are shareholders in
businesses, and these people are likely to receive more money
There may be more jobs available in certain parts of a country,
enabling people living and working in those areas to earn an
31.2 COMPARING LIVING STANDARDS AND
INCOME DISTRIBUTION
• Differences in living standards and income distribution between
countries
One country’s economy may be more successful in its production
activities than another, especially when levels of productivity are
compared
Standards of living will depend on the quality of the education and
healthcare facilities provided
Some countries will have higher levels of capital investment than
others, leading to the use of more advanced technology
Countries will vary in infrastructure, in areas such as transportation
and communication
Some countries will have a greater abundance in natural resources
than other countries, for example, oil
THANK YOU
• Prepared by Ms Ann Nanthini
