What is standard of living?
It basically accounts for the financial health of a person; it refers to the wealth which can buy necessities, comforts or luxuries to a person. It doesn’t include non-materialistic features such as happiness, peace, relationship, freedom, etc, which are part of the quality of life.
How do we measure the standard of living?
We measure the standard of living by real GDP per capita.
Real GDP per capita = Real GDP/Total population
Real GDP per capita is used to compare the standard of living of different countries, it is more specific than real GDP as for example, real GDP of the USA is the highest in the world but because it also has a high population it’s real GDP per capita is lower than Qatar which has the highest real GDP per capita in the world. It simply means the real GDP of Qatar to its population is much higher than the USA or we can say the standard of living in Qatar must be much higher than the USA.
Why real GDP per capita is a rough or not an exact measurement of the standard of living?
It is a good single measure of the average standard of living in a country as it somewhat but not completely related to many other characteristics of a “quality life”, for example on average many countries with high GDP per capita are happier countries, and their life expectancy is also on a good scale.
But there are certain drawbacks of GDP per capita which we can’t ignore, for example, it doesn’t aPercapitaccount for equal distribution of incomes. There are many countries with similar GDP per capita but may have unequal distribution of incomes, for example, suppose one country has 80% poor people but 20% extremely rich people and another country has 60% poor people but 40% rich people which makes it’s average equal to the first country. Another drawback of real GDP per capita is that it doesn’t account for the quality of life, for example, having clean air and water, peace, life expectancy, etc. It also doesn’t appreciate household works, child care, social services, etc.
There can be other measures which can prove to be a better way of estimating a good standard of living or quality of life a person has. For example, human development index is a criterion used by united nations by combining measurement of life expectancy, education, per capita income to measure the social and economic welfare of the people living in a particular country. It shows a broader picture due to the inclusion of a high number of indicators.