Assignment Title: Living Standards

The UK in 2013 had a population of approximately 64 million; standards of living are used to monitor and identify which areas of the UK and the world are living in penury and which areas are more affluent and are thriving. The government is responsible for identifying the contributing factors towards a wealthy region or a poor region.

Burtless, G (1987, p.232) defines standards of living as “the sustained level of consumption of goods and services that can be afforded on the basis of a household’s current assets and current and future income”. Economists and economic research companies have tried and tested many different ways to record the standard of living in the UK.

Living standards is a hot topic in political conversations, and the government are pressured to focus on improving the well-being of the population. Elliot, L (2014) recent article for the Guardian discusses the views of Andrew Harrop, general secretary of the Fabian Society who exclaims that “What we measure – and how we measure it – matters. The financial crisis proved that simply targeting the headline goals of GDP growth, unemployment and inflation was totally inadequate as these measures failed to identify major economic weaknesses as they emerged”. This would suggest that the government need to revisit their policy on standards of living on focus on refining them in order to achieve their objectives.

Mankiw, N (2011) suggests that policymakers must accumulate factors of production quickly in order to make the population more efficient and more positive. There are many different measures of standard of living that have been developed over the past 30-40 years, there are the more traditional ways of measurement and modern, innovative and experimental measures that are both used in the world of business.

Traditional standard of living measures

Crafts et al (2007) suggests that historically, standards of living have been measured by assessing real wages. Real wages is the income of a person and with consideration of the inflationary effects on purchasing power. Recent UK and US wage statistics compiled by Branchflower & Machin (2014) suggests that after a healthy upwards movement of the average wage in the UK in the 1990’s and early part of the 2000’s; there is an alarming downward trend from the year 2010 to 2013 where wages rates are increasingly lowering. From the graph it is also clear that the US wage growth is very little historically and there are no major fluctuations in comparison to the UK. (See Appendix 1).

The Economist (2014) blames the fall in real wages on the UK’s ‘dismal productivity’ since the recession, output in the UK is below the pre-financial crisis peak. This would suggest that Britain needs more highly skilled jobs and possible incentives to boost productivity and create an efficient labour market.

Real wages are effective in measuring standards, real wages statistics can be used to identify trends in wages in different countries over a particular period, this is further emphasised by the International Labour Organisation (2003) who suggest that real wages are useful for identifying differences in purchasing power of wages in different world economies, real wages can also provide an idea of the progress of a working population.