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Much of macroeconomics, as you must be well aware by now, involves measuring, discussing, and comparing GDP among nations.
Y = C + I + G + (X − M)
where
Y = GDP
Despite its use in attempting to compare the quality of life among nations, though, it is limited in its ability to do so.
It is quite good at measuring consumption across nations because of how it is calculated—using the components of consumer spending, investment, government, and net exports—but it is limited in its ability to compare the quality of life.
Simon Kuznets was credited with developing national income accounting, yet he warned, “The welfare of a nation can scarcely be inferred from a measure of national income.”
He stated publicly that GDP should not be used solely as a way to measure the quality of life or the standard of living. In Kuznets’s view, GDP is only one measure, and to discuss and evaluate the health and welfare of an economy, it should be used along with other measures.
Unfortunately, his advice has not always been taken, and people do sometimes use GDP alone to evaluate the standard of living in nations.
However, there is increasing interest in adopting some social indicators that can give us some insight into the quality of life in a nation that GDP by itself cannot capture.
Here are some indicators that can give us more insight into the standard of living, the quality of life, or general welfare:
Poverty is nothing new. However, we would hope that over time, there would be an improvement in this area and that fewer people in the world would be living in a state of poverty.
Unfortunately, the opposite is the case—it has become almost like a global epidemic.
So, why are more people impoverished today than ever before?
The gap between the rich and the poor is growing. Also, we see inequalities in terms of access to health care and education—both of which would help to lessen the gap between the rich and the poor, as well as decrease poverty.
Now, the incidence of poverty varies across countries. It used to be the case that, overwhelmingly, it was only in developing or less developed countries that we saw high poverty rates and much larger income disparities between the wealthy and the poor.
However, this is changing. Today, developed nations are experiencing several factors, such as the following:
So, where is the middle class? Is it disappearing?
Now, it is a source of American pride that our country offers opportunity to anyone, no matter who they are.
EXAMPLE
During Barack Obama’s presidency, in a State of the Union Address, he spoke of the idea that in our country, you can make anything of yourself that you want to. He cited himself as an example, the son of a single mother who became the president of the United States. This is the essence of American pride—that everyone has the opportunity to achieve; it’s the idea of “rags to riches.”Throughout our country’s history, each generation has enjoyed a higher standard of living than the previous one. This is known as wealth mobility, and it is diminishing.
People are starting to ask, “Will we be the first generation not to enjoy a higher standard of living than our parents?” They wonder if the American Dream is still a reality for most Americans, which is a legitimate question.
As measured by our GDP, our country did recover from the Great Recession following the housing crisis. The question remains, though, whether everyone in our country felt this recovery. Did the middle class emerge stronger?
Findings indicate that the benefits of our economic growth have gone overwhelmingly to the wealthiest Americans, while those at the bottom continue to feel the pain from the recession.
Next, let’s discuss some indicators that suggest a country has wealth mobility, or the ability to achieve more and move up in class.
The potential for wealth mobility increases with the following:
All of these things suggest that more people in the nation have access to quality health care and education, allowing them to live longer and achieve more.
Although related to GDP growth rates, these indicators actually shed light on how people are living, so they have more potential to demonstrate the standard of living than does GDP.
Here is a chart that outlines the various signs of a high quality of life in a country:
| Indicator | Directional Movement/Comments |
|---|---|
| Poverty Rate | Lower percentage of the population; government provides welfare and educational/employment assistance |
| Population Growth | Declining or at replacement level |
| Life Expectancy | Increasing |
| Infant Mortality Rates | Decreasing |
| Live Birth Rates | Decreasing (but because of lower pregnancy rates, not infant mortality) |
| Employment Rates | High; no gender/ethnic bias |
| Female Labor Force Participation | Increasing; limited/no wage discrimination |
Several global agencies provide data so that comparisons can be made between countries:
The indicators used are life expectancy, educational attainment, and income. The index is a number between 0 and 1.
Here is a partial list of countries ranked into four quartiles—very high, high, medium, and low—based on their HDI.
| Very High | High | Medium | Low |
|---|---|---|---|
| Norway (0.955) | Russia (0.788) | China (0.699) | Pakistan (0.515) |
| Australia (0.938) | Romania (0.786) | Paraguay (0.669) | Haiti (0.456) |
| United States (0.937) | Jamaica (0.730) | Egypt (0.662) | Yemen (0.458) |
| Germany (0.920) | Turkey (0.722) | Iraq (0.590) | Chad (0.340) |
For a visual representation, here is a map that shows the HDI for each country in the world.
Each country is color coded as follows:
Source: THIS TUTORIAL WAS AUTHORED BY KATE ESKRA FOR SOPHIA LEARNING. PLEASE SEE OUR TERMS OF USE.
