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Abstract
Our ultimate objective is to enhance the standard of living of our societies. But the standard of living has different meanings for different people. A thorough investigation of the concept of the standard of living has been made only recently by Sen, who defines it in terms of functioning and capabilities. Functioning is an achievement, whereas capability is the ability to achieve. The main objective of the present paper is to compare achievements [levels] and improvement [changes] in the standard of living across countries. Using an axiomatic approach, an achievement index is derived which accomodates the view that a further increase in the standard of living of a country when it is already at a higher level signifies an achievement greater than that of another with an equal increase but from a lower base. The paper also tests for the statistical relationship between indicators of the countries' standards of living so derived in their capita GDP. The question posed is whether the aggregate income which provides people with the means to achieve a better life, can be used as proxy measure of the standard living and extent to which the country's improvement in the standard of living can be explained by the levels and changes in the per capita income. The analysis presented in the paper is based on the data from 80 developing countries.
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Copyright © 1993 Published by Elsevier B.V.
What Is Standard of Living?
Standard of living refers to the quantity and quality of material goods and services available to a given population.
Key Takeaways
- Standard of living is the material well being of the average person in a given population.
- It is typically measured using gross domestic product [GDP] per capita.
- Standard of living and quality of life utilize some of the same data, but standard of living represents a more physical aspect of life while quality of life represents the more intangible aspects.
- One alternative standard of living data set is the Human Development Index [HDI], which uses many factors from life expectancy and education, to gross national income [GNI], and homicide rates.
Understanding Standard of Living
Standard of living focuses on basic material factors such as income, gross domestic product [GDP], life expectancy, and economic opportunity. It is closely related to quality of life, which can also explore factors such as economic and political stability, political and religious freedom, environmental quality, climate, and safety.
Standard of living is often used to compare geographic areas, such as the standard of living in the United States versus Canada, or the standard of living in St. Louis versus New York. Standard of living can also be used to compare distinct points in time.
For example, compared with a century ago, the standard of living in the United States has improved greatly. The same amount of work buys an increased quantity of goods, and items that were once luxuries, such as refrigerators and automobiles, are now widely available. Moreover, life expectancy has increased, and annual hours worked have decreased.
In a narrow sense, economists frequently measure standard of living using GDP. Per capita GDP provides a quick, rough estimate of the total amount of goods and services available per person. While numerous, more complex, and nuanced metrics of standard of living have been devised, many of them correlate highly with per capita GDP.
Standard of living is generally measured using per capita GDP.
Standards of living are usually higher in developed countries. In fact, basic measures of standard of living, such as per capita GDP, are often used to define the differences between more and less developed countries. Emerging market economiesusually see rising standards of living over time as they grow and develop into modern, industrialized economies.
Standard of Living Example
One measure of standard of living is the United Nations' Human Development Index [HDI], which scores 189 countries based on factors including life expectancy at birth, education, and income per capita. As of 2019, the countries with the five highest HDI scores are Norway [0.957], Ireland and Switzerland [0.955], Hong Kong and Iceland [0.949], and Germany [0.947].
Conversely, the countries with the five lowest 2019 HDI scores are Niger [0.394], Central African Republic [0.397], Chad [0.398], Burundi and South Sudan [0.433], and Mali [0.434]. The United States came in at #17 while China was #85.
To exemplify the difference between the scores of 0.957 and 0.394, Norway has a life expectancy at birth of 82.4 years, 18.1 expected years of schooling per citizen, gross national income [GNI] per capita of $66,494 [purchasing power parity-adjusted currency units], and an internet usage rate of 96.5% of its population. Niger, meanwhile, has a life expectancy at birth of 62.4 years, 6.5 expected years of schooling, a GNI per capita of $1,201, and an internet usage rate of 5.3%.
The U.S. scored seventeenth on the list, with a combined score of 0.926, a life expectancy at birth of 78.9 years, 16.3 expected years of schooling, and GNI per capita of $63,826.
Standard of Living vs. Quality of Life
The terms standard of living and quality of life are often believed to mean the same. While they may overlap, there is a difference between the two.
Standard of living generally refers to wealth, comfort, material goods, and necessities of certain classes in certain areas—or more objective characteristics—whereas quality of life is more subjective and intangible, such as personal liberty or environmental quality. Characteristics that make up a good quality of life for one person may not necessarily be the same for someone else.