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Standard of living


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Irem Waseem's reasearch about measuring standard of living, Is it true that these measures are reliable, accurate and universal.

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Standard of living

  1. 1. Iremwaseem MSC, University of Sunderland, UK MA , University of The Punjab , PakistanTOPIC: Standard of LivingIntroduction A level of material comforts as measured by the goods, services, and luxuries available to anindividual or group of a particular country. The term ‘standard of living’has in recent decadesincreasingly approached the economists’ idea of a utility functions, in which well-being depends on awide variety of pecuniary and non- pecuniary circumstances. The history shows us the greatcivilizations of ancient Rome and Egypt or of the Incas and theAztecs , we tend to compare themwith the empires of Britain or the growth of the United States. This comparison, judged in economicterms, is highly misleading. It can be said that the great civilizations in Egypt and Rome were able tobuild big buildings, the vast majority of their citizens, by today’s standards, were dirt poor. Even forthe poorer areas of this planet, the growth of the last fifty years has been quite remarkable.Excluding the developed nations of Western Europe, North America, and Japan and focusing only onthe so-called Third World, we find that per capita economic growth, improvements in lifeexpectancy, and declines in mortality from disease and malnutrition outstripped the performance ofthe most advanced nations of Europe, Britain, and France, during the Industrial Revolution of 1760–1860 (Williamson 1993, p. 12). Indeed, the economic growth of South Korea, China, and Taiwan hasbeen so rapid since the 1960s that their people have seen material improvements in thirty or fortyyears that took the British, French, and Germans a century or more to attain.Measuring Standard of Life:Income and ConsumptionMEASURING STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  2. 2. The most popular measures of living standards are income and consumption. Income refers to theearnings from productive activities and current transfers. It can be seen as comprising claims ongoods and services by individuals or households whereas consumption refers to resources actuallyconsumed. Income can also be defined asthe amount of money that is received during a period oftime in exchange for labour or services, from the sale of goods or property, or as a profit fromfinancial investments.The relationship between Income and Consumption shown below:A big debate is still going on about which is the better measure of standards of living. For developingcountries, a strong case can be made for preferring consumption that is based on both conceptualand practical considerations (Deaton and Grosh 2000).National income is a measure of the total flow of earnings of the factor-owners through theproduction of goods & services. In a simple way, it is the total amount of income earned by thecitizens of a nation. All incomes are based on production. In this sense, national income reflects thelevel of aggregate output. According to estimates by economist N. F. R. Crafts, British income perperson (in 1970 U.S. dollars) rose from about $400 in 1760 to $430 in 1800, to $500 in 1830, andthen jumped to $800 in 1860. (For many centuries before the industrial revolution, in contrast,periods of falling income offset periods of rising income.) Crafts’s estimates indicate slow growthlasting from 1760 to 1830 followed by higher growth beginning sometime between 1830 and 1860.For this doubling of real income per person between 1760 and 1860 not to have made the lowest-income people better off, the share of income going to the lowest 65 per cent of the populationwould have had to fall by half for them to be worse off after all that growth. It did not. In 1760, thelowest 65 per cent received about 29 per cent of total income in Britain; in 1860, their share wasdown only four percentage points to 25 per cent. So the lowest 65 per cent were substantially betteroff, with an increase in average real income of more than 70 per cent. It is also said thatnineteenth-century England was the birthplace of a consumer revolution that made more and more consumergoods available to ordinary people with each passing year.It was happened only in industrialrevolution when the national income was remarkably increased.In United Kingdom no people live onless than £4 a day. There were 619,000 net worth sterling millionaires in Britain in2011.( distribution across UK regionsMEASURING STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  3. 3. Office for National Statistic 2007 [2]UK Region Gross IncomeLondon £27,868South East England £21,109East Anglia £19,469Scotland £19,282North West England £19,236West Midlands £18,801South West England £18,629Yorkshire & the Humber £18,614East Midlands £18,321Wales £17,651North East England £17,594Income distribution by job typeMedian earnings between different job types in 2010 can be seen here. Source STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  4. 4. Source: Domestic Product (GDP), Gross National Production(GNP) and Gross National Income( GNI)An estimated value of the total worth of a country’s production and services, calculated over thecourse on one year is called GDP whereas GNP can be calculated by GDP (+) total capital gains fromoverseas investment (-) income earned by foreign nationals domestically. GDP can be an excellentway to measure a country’s standard of living and growth. It is important for there to be growth inproduction in order to keep up increasing population. This is why a higher GDP helps to improve thestandard of living. . Unfortunately GDP does not capture all of a countries production because somebusinesses may produce products in other nations. GNP is regardless of the location of where theproduction process took place. GNP is founded upon ownership of a product not based uponlocation. Just like GDP a higher GNP usually means a higher standard of living. It is an effective wayto measure a nation’s income and wealth.GNI or gross national income combines the factor payments which are rent, wages, interest, andprofit and looks at the income of a country per capita. Per capita means per person of a population.GNI is also an excellent way of judging a country’s standard of living, a higher GNI usually means ahigher standard of living. A downside to GNI is that doesn’t take into consideration the effects on theenvironment such as pollution and crime rates.Top 10 GDP countries according to IMF 2010 (millions of $)1. United States (14,624,184)2. China (5,745,133)3. Japan (5,390,897)4. Germany (3,305,898)5. France (2,555,439)6. United Kingdom (2,258,565)MEASURING STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  5. 5. 7. Italy (2,036,687)8. Brazil (2,023,528)9. Canada (1,563,664)10. Russia (1,476,9120)ProblemsGDP data on its own is an insufficient indicator of our economic well-being. National GDP data canhide regional variations in output, employment and income per head of the population. Much usefuland valuable work is not produced and sold in markets at market prices. The value of the output ofpeople working unpaid for charities and of housework might reasonably be added to nationalincome statistic. Data on relative standards of living is normally adjusted to reflect estimates ofpurchasing power parity to take account of differences in the cost of living – so that each unit ofcurrency has (approximately) the same purchasing power. One Euro of income in each country maynot have the same real purchasing power because of differences in the average cost of living. Forexample, relative prices of a basket of goods and services for consumers in Britain are estimated in2003 to be 18% higher than the EU15 average. At any given time, the current exchange rate for acountry is unlikely to be at PPP levels. Currency speculation or other factors may have driven theexchange rate above or below its estimated PPP level.GDP Omits:• The value of leisure time.• Non-marketed household production.• Environmental damage.• Non-economic values: peace, security, happiness, etc.GDP fails to account for many forms of production that improve a person’s well- being. For example,if you make a meal at home, the labour is not included. However, if you were to go out to arestaurant and consume that same meal, the labour is included in GDP. Unpaid work at home or fora friend and volunteer work is not included and thus GDP does not reflect production of all weproduce. GDP includes the effects of price changes. An increase in GDP due solely to inflation doesnot signal an improvement in living standards. Real GDP is a better measure. Nor does GDP reflectpopulation growth. Changes in the income distribution are not measured. It is also difficult tocompare rates of growth for different countries, as countries use different means of estimatingincome and price levels in their economy.According to the Institute for Fiscal Studies (2001) more than £124 billion of goods and services (13%of GDP) is undeclared to the government resulting in lost tax revenue. GDP underestimates valueadded in the construction industry, second hand cars and personal services eg home help. Theshadow economy has grown very rapidly over the last thirty years and it is a phenomenon that iscommon to many countries.MEASURING STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  6. 6. Each method of estimating GDP is imprecise leading to inaccuracies in the published figuresNon-marketed output e.g. DIY, the value of housework and voluntary activities are not yet part ofofficial NY figuresUndeclared economic activity e.g. shadow or informal economy is excluded from official NY figures.The shadow economy has grown very rapidly over the last thirty years and it is a phenomenon that iscommon to many countries. This is a problem as people hide what they earn and firms hide theiroutput, to avoid paying tax, this is the black economy also known as the "ray gun".Transfer payments are excluded i.e. benefit payments received with no corresponding output egunemployment and child benefits.Over recording of figures (Double Counting) - This is losing all perks as you are not revived andincomes are being counted multiple times. This also affects firms as their output/produce is takenaccount for more than once, as it is used by other so-called production firms.Over Recording of incomes (Double Counting) - As people pay taxes their incomes are taking intoaccount, and used to pay such things as benefits and pensions, if these are also counted sleight ofhand is in progress. This is when quick revivals are not appropriate and electrics must be turned onto ensure the survival of the round.Other ways to measure the standard of living of a countryHuman Development IndexHuman Development Index(HDI) is a composite statistic used to rank countries by level of “ humnandevelopment”, taken as a synonmy of the older term ( the standard of living and quality of life), anddistinguishing “ very high human development”, “medium human development, and ”lowdevelopment” countries (Wikipedia).According to HDI it combined three dimensions until its 2011 reportLife expectancy at birth, as an index of population health and longevityKnowledge and education: as measured by the adult literacy rate (with two-thirds weighting) andthe combined primary, secondary, and tertiary gross enrolment ratio (with one-third weighting).Standard of living, as indicated by the natural logarithm of gross domestic product per capita atpurchasing power parityMEASURING STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  7. 7. Source: HDI report 2011HDI top 10 in 2010 according to the UN:1. Norway2. Australia3. New Zealand4. United States5. Ireland6. Lichtenstein7. Netherlands8. Canada9. Sweden10. GermanySatisfaction With Life IndexDeveloped by a psychologist at the University of Leicester, the Satisfaction with Life Index attemptsto measure happiness directly, by asking people how happy they are with their health, wealth, andeducation, and assigning a weighting to these answers.This concept is related to the idea of Gross National Happiness that came from Bhutan in the1970′ s. It was actually a casual remark by the king that was taken seriously by the Centre for BhutanStudies, which set about designing a survey to measure the population’s well-being. The idea is thatmaterial and spiritual development should take place side by side, underpinned by sustainabledevelopment, cultural values, conservation, and good governance.Top ten satisfaction with life index countries:1. Denmark2. SwitzerlandMEASURING STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  8. 8. 3. Austria4. Iceland5. The Bahamas6. Finland7. Sweden8. Bhutan9. Brunei10. CanadaHappy Planet IndexThe Happy Planet Index was introduced by the New Economics Foundation in 2006. The premise isthat what people really want is to live long and fulfilling lives, not just to be filthy rich. The kicker isthat this has to be sustainable both worldwide and down through the generations.The HPI is calculated based on life satisfaction, life expectancy, and ecological footprint. It doesn’tmeasure how happy a country is, but how environmentally efficient it is to support well-being in thatcountry.In other words, if people are happy but they’re guzzling more than their fair share of naturalresources, the country will not have a high Happy Planet Index. But if people are happy and have amedium environmental impact, or are moderately happy and with a low impact, the country’s scorewill be high.Top Ten Happy Planet Index Countries:1. Costa Rica2. Dominican Republic3. Jamaica4. Guatemala5. Vietnam6. Colombia7. Cuba8. El Salvador9. BrazilMEASURING STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.
  9. 9. 10. HondurasSOCIAL WELFARE STATISTICS TO MEASURE THE QUALITY OF LIFE The number of patients per doctor - a measure of health provision in a country Hospital waiting lists for important operations The number of children per thousand of the population who die each year (infant mortality rates) The average food intake per person (measured by average calorific intake) The proportion of the population that can read or write - literacy rates Average educational attainment at different age levels Crime rates Divorce ratesConclusion:A standard of living describes how well or how poorly a person or group of people live in terms ofhaving their needs and wants met. The standard of living includes factors such as income, qualityand availability of employment, class disparity, poverty rate, quality and affordability of housing,hours of work required to purchase necessities, gross domestic product, inflation rate, number ofvacation days per year, affordable (or free) access to quality healthcare, quality and availability ofeducation, life expectancy, incidence of disease, cost of goods and services, infrastructure, nationaleconomic growth, economic and political stability, political and religious freedom, environmentalquality, climate and safety. National income, health, education, food, crime rates, political stabilityand other necessities of life determined the standard of life.REFERENCES:Fogel, Robert William. The Escape from Hunger and Premature Death, 1700–2100. Cambridge:Cambridge University Press, 2004.AmartyaSen, Goeffrey Hawthorn. The standard of living. Cambridge: Cambridge University Press,1987.A Brown, John C. “The Condition of England and the Standard of Living: Cotton Textiles in theNorthwest, 1806–1850.” Journal of Economic History 50 (1990): 591–615. Shton, Thomas S. TheIndustrial Revolution: 1760–1830. London: Oxford University Press, 1948.Internet References: STANDARD OF LIFE………………. IREM WASEEM MSC UNIVERSITY OF SUNDERLAND UK,MA PUNJAB UNIVERSITY PAKISTAN.