Living Standards (SoL)
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Standard of living refers to the social and economic wellbeing of individuals in a country at a
particular point in time.
Living standard indicator - Real GDP per capita
measures the total economic output of a country (adjusted for inflation) divided by its
population.
relatively easy for economists to calculate.
Advantages
Higher real GDP → higher spending power → higher SoL
Quality of life ignored
It doesn’t account for non-economic factors
that contribute to overall well-being, such as
access to healthcare, education quality,
environmental factors, or social conditions.
Limitations
Environmental impact
It overlooks environmental degradation and
resource depletion.
Non-Market Activities ignored
It doesn't include informal work or household
production (e.g., unpaid family work).
Living standard indicator - Human Development Index (HDI)
This is a composite indicator used to measure living standards beyond income
measures life expectancy at birth.
Healthcare
indicates how well healthcare services are in a
country.
Components of HDI
Education
measures the mean years of schooling and
the expected years of schooling in the
country.
Measures Gross National Income (GNI) per
capita
Income levels
indicates the economic resources available in
the country.
Advantage
Combines multiple aspects of human development, not just economic
output.
Qualitative factors
ignores qualitative factors such as gender
inequalities and human rights.
Income distribution
does not take account of the inequitable
distribution of income
Environmental issues
ignores environmental and resource
depletion resulting from economic growth.
Cultural differences
ignores cultural variations and different
interpretations of the meaning of standards
of living.
Disadvantages
Factors Influencing Differences in Living Standards and Income Distribution
Productivity levels
Highly skilled and experienced workers earn higher salaries, so
will tend to enjoy a higher standard of living.
Role of governments
Depends on how government redistribute the tax revenue. A
fairer distribution of income and wealth can help to raise living
standards for the majority of a population.
Size of population
Densely populated cities tend to have higher rents due to
limited space and high demand, as well as congestion, pollution
and higher living costs → SoL ↓
National income may be high, but it might not be fairly
distributed. For instance, military spending may increase GDP
but not benefit the general population.
Distribution of
national income
Income inequality within a country can significantly lower the
living standards of the poorer population.
Urban centers might offer a wider range of employment options
and higher-paying jobs, while rural areas might rely more on
agriculture or have limited job prospects.
Regional differences
For example, wages in cities like London can be much higher
than in rural areas like Wales.
inflation→ reduces purchasing power → lower SoL
General price level
Higher education levels → higher earning potential & better SoL
Level of education
Countries with better educational systems tend to have higher
HDI scores and higher living standards.
Living standards are often higher in countries with greater
political freedom, civil liberties, and economic rights.
Level of freedom
The Human Freedom Index tracks personal, civil, and economic
freedom globally, influencing living standards.
Reasons for Differences in Living Standards both within and between countries
Productivity and Economic
Structure
Countries with high levels of productivity and modern
industries tend to have higher living standards.
Government Policies
Governments that invest in healthcare, education, and
infrastructure often have higher living standards.
Natural Resources
Countries with abundant natural resources might have
higher incomes, but this does not always translate into
better living standards if the wealth is not distributed
properly.
Economic Growth
Sustained economic growth, as seen in countries like
China, typically improves living standards, lifting more
people out of poverty over time.
Other Resources
How has people’s life expectancy changed over time?
Infographic
What share of the population is suffering from hunger?
When has literacy become a widespread skill?
Interactive map
GDP per capita vs life expectancy