What Does Standard of Living Mean?
The phrase “standard of living” is used to measure and compare the level of comfort, availability of necessities, and overall wealth of different geographic areas.
The term is material in nature and focuses on measurable quantities. It does not take into consideration intangibles such as lifestyles and personal preferences.
The standard of living focuses on things like life expectancy at birth within a certain nation or the number of material goods available. Standard of living can be impacted by economic factors such as the Gross Domestic Product, individual average income, the level of religious and political freedom, and even the state of the environment.
When defining the standard of living, it’s also important to separate it from the concept of quality of life. The terms, while similar in nature, refer to two distinctly different things. Calculating the standard of living is objective, while “quality of life” is more subjective in nature.
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How Is Standard of Living Measured?
The standard of living can be applied in two different ways. It can be used to highlight the difference between two geographic areas — say, for instance, Great Britain and the United States — in order to compare and contrast their economies, wealth, comfort, and ability to meet basic necessities.
It can also be used to measure those same elements within a specific area over the course of time. This allows analysts to measure the change in the standard of living for, say, the U.S. in 1979 and 2019.
Gross Domestic Product
Gross Domestic Product (GDP) is often a key factor in calculating standard of living. This is the total value of the economic output of a nation over the course of a year.
However, simply taking a raw or “nominal” GDP number does not suffice. Instead, the real GDP should be used.
Real GDP is the total value of economic output adjusted for inflation or deflation. It’s critical to check if inflation has been taken into account when considering the standard of living. If inflation is not part of the calculation, it can inflate the numbers, making improvements in the standard of living appear better than they actually are. When this is the case, genuine, objective comparisons become impossible.
Once you calculate the real GDP, you must divide it by the total number of individuals living within a region.
This calculation gives you the average GDP per capita of the region in question over the course of a year. The real GDP for the U.S. in mid-2019, for example, was $57,821.28, with the inflation adjusted from the year 2012.
Other Significant Factors
The real GDP per capita is a significant baseline measurement in many standard of living calculations, but it isn’t flawless.
For instance, real GDP per capita doesn’t take into account unpaid work like stay-at- home parenting or eldercare — both of which are critical to enabling the economy to function.
Real GDP also doesn’t factor in things like income inequality or environmental concerns. The GDP per capita in Qatar, for instance, is over $60,000, but that fails to reflect the fact that working conditions for many poor laborers in that nation are extremely poor and even border on forced labor at times.
In addition, companies that produce wealth at the expense of creating pollution that significantly affects those living in the region are also able to slip under the radar when GDP is solely considered.
With these limitations in mind, here are several other easily quantifiable factors that are often taken into consideration when figuring out the standard of living:
- The poverty rate.
- Life expectancy from birth.
- Social inequality.
- Housing costs.
- Political stability.
- Economic stability.
- Political and religious freedom.
- The availability of education.
Human Development Index
Another alternative to calculating the standard of living is the Human Development Index (HDI).
Rather than working from economic growth alone, HDI is “a summary measure of average achievement in key dimensions of human development.” These areas include:
- Life expectancy from birth.
- Being knowledgeable — think access to education and adult literacy.
- The standard of living as calculated by the gross national income per capita.
As a point of reference, the U.S. scores a 0.924 on the HDI. This puts it 13th out of 189 countries.
Standard of Living vs. Quality of Life
Standard of living is often confused with the similar phrase “quality of life.” However, the two terms are distinctly different.
Standard of living refers to a distinctly measurable quantity that is calculated objectively and is tethered to standardized benchmarks.
Quality of life is intrinsically subjective in nature and is filled with the approximate valuation of intangible factors and considerations such as:
- Freedom from discrimination.
- The presumption of innocence until proven guilty.
- Having a right to privacy.
- Equal pay.
- A right to education.
- The right to vote.
Not surprisingly, quality of life can feel a bit nebulous and can vary dramatically from one person to the next.
When considering either standard of living or quality of life, it’s important to keep perspective.
For instance, while the U.S. may rank fairly high for its standard of living, remember that you’re talking about a very large nation with hundreds of millions of individuals that span a continent. Within the U.S., both the standard of living and the quality of life can fluctuate wildly depending on where you are.
Things like discrimination in a poor, urban area that lacks proper education or economic opportunities can make a big difference. Minimum wage varies from one state to the next as well, potentially leaving those with lower incomes unable to meet their basic needs.
Even if you reevaluate the standard of living for a smaller region, the quality of life can still vary from one individual to the next. This is why it’s always wise to take macroeconomic quantities like the standard of living with a grain of salt and the open understanding that it may not accurately reflect everything about life in a particular nation, state, or region.
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This post was updated November 25, 2019. It was originally published November 25, 2019.