in the wide world of economics there are many considerations to be made regarding the effect

certain economic indicators have upon the livelihood of government firms and ultimately

households the correlation between these indicators and whether they can accurately explain or

measure assumptions within the macroeconomic framework is something that is to be noted and

explored within this discussion standard of living is a broad term that encompasses many factors

including some that are not bought and sold in the market and some that are it refers to the

quantity and quality of material goods and services available to a given population and focuses

on quantifiable things such as income employment opportunities life expectancy inflation rate

and even paid vacation persons receive each year the level of gdp per capita for instance captures

some of what we mean by the term standard of living as illustrated by the fact that most of the

migration in the world involves people who are moving from countries with relatively low gdp

per capita to countries with relatively high gdp per capita however upon further investigation this

discussion aims to highlight the assertion that gdp per capita may not be an adequate measure of

the standard of living in simple terms per capita gdp would be defined as the average income per

person in a country calculated by dividing the countrys gross domestic product gdp by its

population this makes it a good measurement of a countrys standard of living as it tells you how

prosperous a country feels to each of its citizens toby marsden noted in his article how useful is

gdp in measuring living standards many have made the argument that overall gdp per capita is

the most useful in developed and developing countries as it not only shows the

economic prosperity but also represents the well-being of

different populations within that country which therefore is the most useful way to measure

living standards in developed and developing countries however upon a closer look

at the conduction of per capita gdp and what the standard of living criteria entails it is
evident that there are serious limitations with this metric initially a very if not the most important

limitation of gdp per capita as a measure of standard of living is the lack of consideration for

income distribution within a countrys population it has been clarified earlier that gdp divided by

a countrys population is how we arrive at the average income per person defining our gdp per

capita and as a result there is an inaccurate reflection of the distribution of wealth and income

among different segments of the population for instance a country with a high per capita gdp

might have significant income inequality with a small portion of the population holding most of

the wealth while the majority struggles financially take the united states as an example in 2022

the calculated per capita gdp was 78347 according to the census bureau and internal revenue

service however just over 50 of us citizens had an annual household income that was

less than 75000 us dollars despite the high gdp per capita reported in that year there was still a

disparity between the average household earnings leaving a very unclear position on the standard

of living for about half of the us citizens highlighting substantial income inequality with a

significant gap between the estimated and actual degree at which individuals can possess quality

and quantity of comfort and luxurious material goods and services another aspect of the lack of

consideration regarding income distribution is the cost-of-living differences in which differences

between regions or communities within a country are not taken into consideration by gdp per

capita for example in switzerland while per capita gdp is high the cost of living in cities like

zurich or geneva is also significantly higher compared to rural areas impacting the real

purchasing power of individuals indicating that a high gdp per capita in one area might not

translate to a high standard of living if the cost of living is also high secondly gdp includes

production that is exchanged in the market but it does not cover production that is not exchanged

in the market per capita gdp does not account for non-market transactions such as unpaid
household work or informal sector activities for example hiring someone to fix a flat tire or tow

your car is a part of gdp but accomplishing these tasks yourself is not a part of gdp this brings

into perspective the primary focus on market transactions while overlooking non-market

transactions that contribute to overall well-being one prominent example of this is noted by khan

academy in their discussion on the limitations of gdp they note one remarkable change in the us

economy in recent decades is that as of 1970 only about 42 of women participated in the paid

labor force by the second decade of the 2000s nearly 60 of women participated in the paid labor

force according to the bureau of labor statistics as women are now in the labor force many of the

services they used to produce in the nonmarket economylike food preparation and childcarehave

shifted to some extent into the market economy which makes the gdp appear larger even if more

services are not being consumed this occurrence specifically points out that as more of the

services previously performed in the non-market economy such as household chores and

caregiving are shifted into the market economy gdp appears larger even if the actual

consumption of services remains the same or even decreases this phenomenon can skew the

perception of economic growth and standard of living when relying solely on gdp per capita.

furthermore we now move on to a constraint that is focused on the aspect of externality and

sustainability with its correlation and precise impact on the living standard by its measure of per

capita gdp externalities refer to the unintended economic activities that affect third parties who

are not directly involved in the transaction which can lead to these effects being either positive

beneficial or negative harmful and these are not reflected in market prices since per capita gdp

primarily focuses on market transactions it often fails to account for externalities leading to an

incomplete picture of overall well-being let us consider this example off the coast of tobagos

atlantic coast on february 7 2024 an oil spill was spotted which damaged some of the islands
mangroves and threatened its tourism and fishing sector the spill persisted unto the caribbean sea

threatening nearby venezuela and caribbean islands including bonaire in the pursuit of extracting

fossil fuels for energy production this led to water and land pollution affecting the health and

livelihoods of nearby regions and communities another important thing to consider is the

overexploitation of natural resources such as fisheries and forests which may lead to short-term

boosts in per capita gdp but eventually can cause the collapse of ecosystems depletion and

degradation of these resources compromising their availability for future generations in both

cases gdp per capita alone does not capture whether economic growth is sustainable and

equitable across generations and fails to account for its effects on third parties this calls into

question gdps validity in capturing the individuals lives affected because of these externalities

and sustainability issues and highlights the variance between GDP itself on per capita gdp as a

measure of standard of living to quote Joseph Stiglitz GDP is a measure of economic output not

of social welfare finally we will examine factors relating to the quality of life and

how these coincide with what we have come to know thus far on GDP per capita quality of life

refers to the standard of health happiness security and material comfort of an individual a group

of people or a nation most people when they hear the standard of living and quality of life

mentioned in the same sentence assume that one is purely physical and the other

emotional and that there is little to no correlation between the two however while their meanings

and what they entail are distinct they are not entirely separate both are used to measure the well-

being of individuals and communities both consider factors such as income leisure time

education and access to healthcare before we go into depth regarding the disconnect between per

capita GDP and standard of living let’s look at this example from khan academy on GDP’s

account of leisure time the us GDP per capita is larger than the GDP per capita of Germany but
does this prove that the standard of living in the united states is higher not necessarily since it is

also true that the average us worker works several hundred hours more per year than the average

german worker the calculation of gdp does not take german workers extra weeks of vacation into

account based on this example and our previous definition of standard of living it is fair to

say that the number of vacations persons receive per year is a good indicator of a good or even

high standard of living which as we can see gdp per capita fails to consider when cross-

examining the standard of living between countries the inability to account for these crucial areas

may lead to the conclusion that as gdp per capita increases by 8 the gdp for everyone in society

has also risen by 8 or that the gdp of some groups has risen by more while the gdp of others has

risen by less or even declined as we see this leaves us with uncertainty as most of the population

could remain at the same level of standard of living while smaller groups have increased in

material possessions not indicating a general increase in the living standard for the country the

many things that aid in higher living standards gdp tends to miss the mark on accounting for

them and if that is not sufficient then using gdp per capita becomes inefficient as a result gdp

includes what is spent on healthcare and education but does not address whether life expectancy

or infant mortality rate has risen or fallen nor does it address the populations literacy and basic

arithmetic rate to quote the american economist joseph stiglitz once again gdp does not allow for

the health of our children the quality of their education or the joy of their play it does not include

the beauty of our poetry or the strength of our marriages the intelligence of our public debate or

the integrity of our public officials it measures everything in short except that which makes life

worthwhile.

in conclusion while per capita gdp has long been regarded as a primary indicator of a nations

standard of living its limitations are increasingly recognized in the context of a multidimensional
understanding of well-being as discussed per capita gdp fails to account for income distribution

non-market transactions externalities and important quality-of-life factors consequently relying

solely on per capita gdp can lead to a skewed perception of a countrys standard of living

however the exploration of alternative measures offers a promising avenue for

addressing these limitations the human development index hdi provides a more comprehensive

view by incorporating indicators such as life expectancy education and income similarly the

genuine progress indicator gpi adjusts gdp to account for income distribution environmental

degradation and unpaid work offering a more holistic assessment of well-

being moreover subjective well-being measures capture individuals perceptions of

their own lives shedding light on aspects of well-being that quantitative metrics may overlook as

we move forward there is a need to prioritize the development and utilization of complementary

measures that capture the complexity of human well-being as we navigate the challenges of the

21st century embracing a multidimensional perspective on well-being is essential for fostering

sustainable and inclusive development