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National Income Statistics and Standard of Living Essay

The national income statistics show that the USA has the highest standard of living; this can be proved by looking at the gross national income of The United States, which is $12,969.6 million, and the gross national income per capita which is $43,740. This figure is over 125 times the income per capita of Tanzania which is $340. This also suggests that the standard of living in Tanzania is very poor. The UK calculated a gross national income of $2,263.7 million, and a gross per capita figure of $37,600, making it the country with the second highest standard of living, behind the USA and ahead of New Zealand, Czech Republic and Russia. China has a higher gross national income than the UK at $2,263.8 million; however it only has a per capita income of $1,740, which is only higher than Indonesia, Pakistan, Kenya and Tanzania.

This suggests that it has a poor standard of living, despite having a large national income. This may be a result of a distorted distribution of income, with the wealthier part of the population having a considerably higher income than the rest of the population. Pakistan has a gross national income of $107.3 million which is over 5 times the figure of Kenya, whereas it only has a per capita figure of $690, which is a mere $160 more than Kenya. This implies Pakistan has a relatively poor standard of living, even though the national income is more than New Zealand’s, which has a much larger standard of living. The same applies for Indonesia, which has a gross national income of $282.2 million, and had a gross national income per capita of $1,280.

The national income is also higher than New Zealand’s figure as well as the figure for the Czech Republic. However, New Zealand’s per capita income is 20 times higher than Indonesia’s, meaning the standard of living is higher there, than it is in Indonesia. Colombia has a GNI of $104.5 million, and a Per capita income of $2,290. This means the standard of living is higher in Colombia, than it is in Indonesia, even though Indonesia has a national income twice the size of Colombia’s figure. This may be due to the fact that Indonesia is almost 5 times the size of Colombia, and therefore has a larger percentage of people living in poverty.

Fair Comparisons?

Although we can compare different countries easily, there are many limitations in using national income (NI) statistics to compare the standard of living between countries. One limitation can be caused due to there being no common unit of measurement, as some countries use their domestic currency to measure the national income whereas others use US dollars to measure national income. Therefore there is no standard unit, which leads to frequent inconsistencies. Another problem with using national income statistics is that there are many inaccuracies due to the difficulties in the measurement e.g. non-marketed goods such as the service of a housewife are not counted in the NI calculation.

The goods and services produced and sold in an illegal manner in the black economy such as drugs and gambling are also not counted in the NI calculation. Also, Price changes within specific markets also cause inaccuracies e.g. Due to price rises, the value of national income for a particular year tends to increase even when the production is decreasing. A further criticism is that the NI statistics do not take into account the distribution of wealth, as a result, the standards of living within a country may be subjective, e.g. countries with a very small, very rich upper class and a very large, very poor lower class may have a high mean level of income, even though the majority of people have a “low standard of living”. Furthermore, an increase in national income may lead to an increase in the amount of goods and services available for consumption, which will increase the standard of living; however this is not necessarily true, as national income does not measure non material measurements, such as life expectancy and pollution levels. Therefore, problems are created when NI statistics are used to compare the standard of living.

Alternative Measures of the Standard of Living
Human Development Index (HDI)

The Human Development Index is a simple average of three indexes reflecting a countries achievement in health, which is measured by life expectancy. Education, which is measured by adult literacy and gross enrolment ratio, and Living standard which is measured by GDP per capita in PPP terms (purchasing power, disposable income). A higher HDI indicates a higher standard of living and vice versa. HDI index values range from 0 to 1. The countries with an HDI of over 0.800 are a part of the High Human Development group. Those between 0.500 and 0.800 are considered as Medium Human Development countries. The countries that fall below 0.500 are the Low Human Development countries. The inclusion of other indicators in HDI allows it to give a better picture of the state of well- being of a countries population. E.g. people in Norway live a longer life than those in the USA, even though the USA has higher national income statistics.

Norway’s life expectancy at birth in in 2006 was 82.9 years; by comparison, the life expectancy at birth in the USA was only 77.7 years. Another advantage of using HDI, as opposed to GDP, is that due to it only being 1 value, it allows statistical analysis to be completed and overall a practical measure for databases, and models. Although it is a more accurate representation of the standard of living than GDP, the HDI is a rather crude measure of standard of living, as it does not include many aspects of development in its index, such as war, political oppression and emotional change, just to name a few. As a result, it can never be a fully accurate representation of the Standard of living in a particular country.


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