What are living standards?
Living standards describe how well people live. They have two parts: material living standards (the quantity of goods and services people can buy) and non-material living standards (things such as clean air, safety, leisure time and life expectancy). A country can be rich in goods yet score poorly on pollution or crime.
Key idea
Real GDP per head = real GDP ÷ population. It is the most common money measure of average living standards because it adjusts for both inflation and population size.
Comparing standards
Real GDP per head lets us compare countries, but it has limits. It is an average, so it hides inequality: a high average can sit alongside widespread poverty. It ignores unpaid work and the informal economy, and it says nothing about how output is composed or about the environment.
Example
Two countries have the same real GDP per head. In one, income is shared fairly evenly; in the other, a small group holds most income. Average living standards look identical, but most people live very differently.
Wider measures
To capture more than income, the Human Development Index (HDI) combines real GDP per head, education (schooling) and health (life expectancy) into a single figure between 0 and 1. It gives a fuller picture of development than income alone, though it still leaves out factors such as freedom and the environment.
Remember
- Material and non-material standards both matter.
- Real GDP per head adjusts for inflation and population.
- HDI adds education and health to income.