Background
The term “standard of living” refers to the level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or geographic area.
Historical Context
The concept’s roots can be traced back to early economic thought, where theorists have long been interested in defining what constitutes a good life and how societies can ensure that their populations achieve this standard.
Definitions and Concepts
“Standard of living” is often measured by consumption per head, or by consumption per equivalent adult, counting children as fractions of adults. However, this measurement has notable limitations.
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Consumption Measurement: This traditional means of assessment might miss significant welfare factors like:
- Services: For instance, health care and education, which might be free or subsidized and therefore not directly linked to individual consumption.
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Environmental Externalities: It disregards the negative impacts such as pollution, traffic congestion, or crime.
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Saved Income: Savings also contribute to welfare; accumulated assets provide financial security, reducing uncertainty over future consumption and increasing subjective well-being for risk-averse individuals.
Major Analytical Frameworks
Classical Economics
Primarily focuses on measurable consumption, emphasizing material wealth as the main indicator of living standards.
Neoclassical Economics
Includes theories of consumer choice and utility, but still primarily evaluates living standards through individual consumption and income metrics.
Keynesian Economics
Regards aggregate consumption and national income as primary measures but also emphasizes government roles in promoting employment and stabilizing the economy, which indirectly affects living standards.
Marxian Economics
Considers the standard of living as affected by labor exploitation and unequal material distribution, emphasizing class struggle and the role of capital ownership.
Institutional Economics
Factors in institutional settings such as social norms and legal systems, complementing consumption-based metrics with qualitative measures of welfare.
Behavioral Economics
Investigates non-rational behaviors and psychological factors that influence people’s perceived standard of living, focusing on happiness and subjective well-being alongside economic indicators.
Post-Keynesian Economics
Considers macroeconomic policies’ impact on employment and income distribution, thus affecting living standards wholesomely rather than in isolation.
Austrian Economics
Stresses the importance of individual preferences and subjective valuations in assessing living standards.
Development Economics
Looks at broader indicators including human welfare measures such as the Human Development Index (HDI), considering health, education, and living conditions alongside income and consumption.
Monetarism
Focuses on policy impacts on inflation and how this affects the real consumption potential and purchasing power, indirectly influencing living standards.
Comparative Analysis
While consumption remains a core metric in evaluating the standard of living, frameworks vary in their inclusion of additional factors such as services, environmental externalities, and savings.
Case Studies
Various countries’ welfare measures can provide insights into how different strategies impact living standards. For example, comparing Scandinavian countries with their high social spending versus the United States with greater income inequality.
Suggested Books for Further Studies
- “Economics of Welfare” by Arthur Pigou
- “The Wealth of Nations” by Adam Smith
- “Capital in the Twenty-First Century” by Thomas Piketty
- “Development as Freedom” by Amartya Sen
Related Terms with Definitions
Quality of Life
A broader concept than the standard of living which includes non-economic indicators of social well-being.
Human Development Index (HDI)
A composite statistic of life expectancy, education, and per capita income indicators, used to rank countries into four tiers of human development.
Gross Domestic Product (GDP)
A monetary measure of the market value of all final goods and services produced in a period, frequently used to estimate the economic performance of a country or region.
By understanding the complex interplay of these various factors, stakeholders can better evaluate and improve the standard of living on multiple fronts.
