Living Standards (Copy)
5.1.1 Indicators of Living Standards
- Real GDP per head (Real GDP per capita):
- Formula: Real GDP ÷ Total population
- Measures average income per person, adjusted for inflation.
- Reflects average output and consumption possibilities.
- Used widely to compare material living standards across countries.
- Human Development Index (HDI):
- Composite indicator developed by the UN.
- Takes into account three dimensions:
- Income: Gross National Income (GNI) per capita (PPP adjusted).
- Health: Life expectancy at birth.
- Education: Mean years of schooling + expected years of schooling.
- Scored between 0 (lowest) and 1 (highest).
Diagram: Comparing indicators
Living Standards
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Real GDP per head HDI
(income focus) (income + health + education)
- Other indicators of living standards (secondary use):
- Access to healthcare and education.
- Quality of housing and infrastructure.
- Poverty rate and inequality measures.
- Environmental quality (pollution levels).
- Employment opportunities.
- Political stability and human rights.
5.1.2 Comparing Living Standards and Income Distribution
Comparing Living Standards
- Using Real GDP per head:
- Advantages:
- Easy to calculate and compare.
- Provides a monetary measure of output and income.
- Allows for time-series analysis and cross-country comparison.
- Disadvantages:
- Ignores income distribution (average may hide inequality).
- Does not account for non-market activities (home work, volunteering).
- Excludes environmental costs (pollution, resource depletion).
- Ignores quality of life factors (freedom, happiness).
- Advantages:
- Using HDI:
- Advantages:
- Broader measure, includes health and education.
- Closer to measuring overall well-being.
- Allows comparison between countries at similar GDP levels but different development outcomes.
- Disadvantages:
- Still limited (excludes inequality, environment, cultural aspects).
- Data may be unavailable/unreliable in some countries.
- Education and health quality differences may not be fully captured.
- Advantages:
Diagram: GDP vs HDI
GDP per head → $$$$
HDI → $$$$ + Health + Education
Reasons for Differences in Living Standards
- Within countries:
- Urban vs rural divide (cities usually have higher wages, better services).
- Regional differences in resources and infrastructure.
- Discrimination (gender, ethnicity) in access to jobs and education.
- Skill differences (educated workers earn more).
- Employment type: formal sector (stable income, benefits) vs informal sector (low, irregular pay).
- Between countries:
- Natural resource endowment (oil-rich vs resource-poor).
- Level of industrialisation and diversification.
- Access to technology and global markets.
- Political stability vs corruption/conflict.
- Education and healthcare quality.
- Population growth rates (higher growth can lower GDP per head).
- Trade openness and foreign investment.
Diagram: Causes of differences in living standards
Differences in Living Standards
/
Within Countries Between Countries
- Urban/rural divide - Natural resources
- Skills/education - Industrialisation
- Gender inequality - Technology access
- Formal/informal jobs - Political stability
- Education/healthcare
Comparing Income Distribution
- Lorenz Curve:
- Graph showing cumulative percentage of income earned against cumulative percentage of population.
- Perfect equality: straight 45° line.
- The further the curve bows away from equality line → greater inequality.
Diagram: Lorenz Curve
Income Share ↑
100% |---------------------- Perfect equality line
| *
| *
| *
| *
0% |_______________________ Population →
0% 100%
- Gini Coefficient:
- Numerical measure of inequality (0 = perfect equality, 1 = perfect inequality).
- Calculated as the area between Lorenz Curve and equality line ÷ total area under equality line.
- Lower Gini = more equal distribution.