Standard of Living

Where's the Best Standard of Living? Depends Who You Ask.

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Leonardo DiCaprio played a financier who enjoyed a high standard of living in 'The Wolf of Wall Street.'. Photo: James Devaney/WireImage/Getty Images

Definition: The standard of living is the amount of goods and services produced and available to purchase by a person, family, group, or nation. It doesn’t measure nonmaterial characteristics, such as relationships, freedom, and satisfaction. They are important to a good quality of life, but are difficult to objectively measure. Therefore, the standard of living is a measure of the material aspects alone.

Other indices that include these broader quality of life characteristics still include the material standard of living measurement.

The Most Popular Measure of the Standard of Living

The most widely-used measure of the standard of living is GDP per capita. This is a nation's gross domestic product divided by its population. The GDP is the total output of goods and services produced in a year by everyone within the country's borders. 

Real GDP per capita removes the effects of inflation, or price increases. Real GDP is a better measure of the standard of living than nominal GDP. That’s because a country that produces a lot will be able to pay higher wages. That means its residents can afford to buy more of its plentiful production. In fact, nearly 70 percent of the U.S. GDP is consumer spending. The other three components of GDP are business investment, government spending and net exports.

Using GDP to measure the standard of living has three errors.

First, it doesn't count unpaid work. That includes critical components like in-home child or elder care, volunteer activities, and housework. Many activities that are included in GDP couldn't occur if there weren't these support activities.

Second, it doesn't measure pollution, safety, and health. That means the government may encourage an industry that spews chemicals as part of its manufacturing process.

The elected officials only see the jobs created. The cost may come to roost until decades later.

Third, the GDP per capita measurement assumes that production, and its rewards, are divided equally among everyone. It ignores income inequality. That means it can report a high standard of living for a country where only a few enjoy it. (Source: "How Do We Measure the Standard of Living?" Federal Reserve Bank of Boston.)

Other Measures of the Standard of Living

The World Bank uses a very similar measure, GNP per capita. That's Gross National Product per person. It measures the level of income paid to all the country's citizens, no matter where they are in the world. GDP per capita only measures the income paid to those residing in the country’s borders. GNP per capita can raise a country’s standard of living. That’s because many citizens live in other countries to get better jobs. They also remit part of their wages back to their families at home. (Source: Beyond Economic Growth Student Book, The World Bank.)

The United Nations uses the Human Development Index. It measures the following four data points.

  1. Life expectancy at birth.
  2. School enrollment.
  3. Adult literacy.
  4. GNI per capita.

Since the UN compares GDP between countries, it uses purchasing power parity.

That adjusts for differences in exchange rates. The UN uses the Index to question national priorities. It asks how two countries with similar GNIs per capita have different human development scores. 

Gallup's Standard of Living Index is a U.S. survey. It asks Americans if they are satisfied with their current standard of living. It asks them whether it’s getting better or worse. This is an extremely subjective measure, since it’s an attitudinal measurement.

Redefining Progress uses the Genuine Progress Indicator for the United States. It starts with GDP, then adjusts for crime, volunteer work, income inequality and pollution. For more, see Genuine Progress Indicator.

Standard of Living by Country

The standard of living by country depends on who's doing the measuring and how it's being measured.

Here's the most recent highest and lowest ranked countries, with links to the full listing.

CIA World Factbook ranks every country in the world using GDP per capita. In 2016, the highest standard of living was in Liechenstein ($139,100) and the lowest was Central African Republic ($400). The United States was #20 ($57,300). 

The World Bank's ranking uses gross national income per capita. It lists Singapore as highest ($85,050) and Central Africa Republic as lowest ($700). The United States is #7 ($58,030). (Source: "GNI per Capita," World Bank.)

The UN's Human Development Index lists Norway as highest, with a score of .949, and the Central African Republic as lowest, with a score of just .352. The United States is 10th, at .920. (Source: "International Development Indicators," Human Development Reports, United Nations.)​