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. Non-material aspects, such as relationships, freedom, and satisfaction, 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 attempt to measure a broader definition of quality of life, but they all include the material standard of living measurement.

A Good 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 (GDP) 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 is used to take out any effects of inflation, or price increases. Real GDP is a good measure of the standard of living 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% of the U.S. GDP is consumer spending. For more, see Components of GDP.

But using GDP as a measurement of the standard of living has some glaring 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. GDP 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. The GDP per capita measurement also assumes that production, and its rewards, are divided equally among everyone. It ignores income inequality.  (Source: How Do We Measure Standard of Living? Federal Reserve Bank of Boston)

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. (Source: The World Bank, Beyond Economic Growth Student Book.)

The United Nations uses the Human Development Index (HDI). It measures four data points: life expectancy at birth, school enrollment, adult literacy, and GNI per capita. Since it compares GDP between countries, it uses purchasing power parity  to adjust for differences in exchange rates. The United Nations uses the HDI to question national priorities by asking how two countries with similar GNIs per capita have different human development scores. 

Gallup's Standard of Living Index is a survey that asks Americans if they are satisfied with their current standard of living, and whether its getting better or worse.

This is an extremely subjective measure, since its an attitudinal measurement.

Redefining Progress uses the Genuine Progress Indicator (GPI) 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, and links to the full listing.

CIA World Factbook ranks every country in the world using GDP per capita. The highest standard of living is Qatar ($145,000) and the lowest is Somalia ($400). The United States is #19 ($56,300). 

The World Bank's ranking using 2014 GNP per capita also lists Qatar as highest ($134,420) and Central Africa Republic as lowest ($600). The United States is #10 ($55,900).

The UN's Human Development Index lists Norway as highest, with a score of .944, and Niger as lowest, with a score of just .348. The United States is eighth, at .915. 

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