Source: Image of UN Development Report Quartiles, creative commons, http://en.wikipedia.org/wiki/File:2013_UN_Human_Development_Report_Quartiles.svg
Hi, welcome to Macroeconomics. This is Kate. This tutorial is on global indicators of standard of living. As always, key terms are in red and my examples are in green.
So in this tutorial, we'll talk about the shortcomings, first of all, of GDP as a measure of quality of life. And we'll discuss current trends in poverty rates and income disparity. We'll talk about some quality of life indicators that can be used in addition to just GDP. And finally I'll define the HDI for you, and hopefully you'll understand its purpose.
So you have definitely seen this before, this Y equals C plus I plus G plus net exports. Well, much of macroeconomics, as I'm sure you're familiar now, involves measuring, discussing, and comparing GDP among nations. And despite its use in attempting to compare quality of life among nations, it really is limited in its ability to do this. It's very good at measuring consumption across nations because of how it's calculated. Y equals consumer spending, investment, government, and net exports. But it is limited in its ability to compare quality of life.
So Simon Kuznets was credited for developing national income accounting. Yet he himself actually warned, "The welfare of a nation can scarcely be inferred from a measure of national income." So basically, he even stated publicly that GDP should not be used solely as a way to measure quality of life or standard of living.
His view was, look, GP is only one measure. And to discuss and evaluate the health or welfare of an economy, it really should be used along with other measures. Unfortunately, his advise hasn't always been taken. And people do sometimes use GDP on its own to evaluate standard of living in nations. But there is increasing interest in adopting some social indicators that can give us insight into quality of life a little bit better in a way that GDP by itself can't capture.
So what are some indicators that can give us more insight into the standard of living, quality of life, or general welfare? Poverty, income disparity, and wealth mobility are some of the things that we'll talk about. Population growth, including life expectancy, mortality, and live birth rates. And then finally, literacy rates. You can see these things go a little bit beyond just calculating consumption in an economy. So we'll talk about each of these.
Let's start with poverty. Poverty, obviously, is nothing new. But we would hope that over time there would be 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's almost become a global epidemic.
So why are more people impoverished today than ever? Well, the gap between rich and poor is growing. And we're seeing inequalities in terms of access to health care and access to education, which both of those things would help there to be less of a gap between the rich and the poor and less poverty.
So is this happening in all countries? Obviously, it varies. It used to be the case that, overwhelmingly, it was only in developing or less developed countries that we saw very high poverty rates and much larger income disparities, so a big gap between the wealthy and the poor. However, this is starting to change.
And today, developed nations are experiencing, first of all, increasing population. Some of this is a natural thing and normal because, if you think about it, why would developed nations be experiencing increasing population? Well, people are living longer, so that's good. But that's causing some strains in terms of increasing population.
They're are also experiencing slowing economic growth. And there's becoming a very wide range of educational attainment. So all of these are kind of causing the gap between the rich and poor to grow significantly even in some of the developed nations in our world. And that means that a very small percentage of the wealthiest at the top own most of the nation's wealth.
So where's the middle class? Is it disappearing? So, it's a source of American pride that our country offers opportunity to anyone, no matter who you are. In just the most recent State of the Union Address, I recall listening to our President give examples of people who had made a lot of themselves. And he gave himself as an example. This is Barack Obama, saying, how is it that the son of a single mother could become President? Well, that's American pride, that everyone has the opportunity to achieve. So the idea in our country is if you work hard, you can make anything of yourself that you want to. It's the idea of rags to riches.
So throughout our country's history, each generation has enjoyed a higher standard of living than their parents. And that's what is called wealth mobility. It is starting to diminish, so people are starting to ask, will we be the first generation to not live a higher standard of living than our parents with the upcoming generations? Is the American dream still a reality for most Americans? We have to ask that question.
So as measured by our GDP, our country did recover from The Great Recession following the housing crisis. But we have to ask ourselves, has everyone in our country felt this recovery? Did the middle class emerge stronger? Findings are actually starting to indicate that the benefits of our economic growth have gone overwhelmingly to the wealthiest Americans. And those at the bottom continue to feel the pain from the recession.
So what are some indicators that a country has great wealth mobility, the ability to achieve more and move up in class? Well, one of the things that shows a great potential for wealth mobility are lower poverty rates, higher life expectancies, and lower infant mortality rates. Infant mortality rates are measured as the number of deaths of infants under one per one thousand live births. And then obviously, higher literacy rates also.
All of those things, all of the things that I just listed are going to suggest that more people in a 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 do shed light on how people are living. So they have much more potential to demonstrate standard of living than just GDP.
Here is a chart for you. You can pause and take a look at this more in-depth. But these are all signs of a high quality of life in a country. So if we look at poverty rates, obviously, a lower percentage of the population and a government that's providing welfare and educational or employee assistance when necessary. Declining or just at replacement in terms of population growth. A life expectancy that's increasing. Infant mortality rates decreasing. A lot of these are common sense. Live birth rates that are actually decreasing, but because of lower pregnancy rates, not infant mortality, obviously. And then high employment rates with no gender or ethnic bias.
And in terms of female labor force participation-- would be greater with limited or no wage discrimination. And just as a key term for you to remind you what labor force participation rate means, it's the percentage of the population actively seeking work and defined as being able to do so. So when we look at females, being out there looking for jobs, seeking jobs, that is a sign of a higher quality of life in a nation. That's one of the indicators.
So there are several global agencies that do provide this kind of data so that comparisons can be made between countries. And three of them are the World Bank, the United Nations, and the IMF, or International Monetary Fund.
Finally, let's talk about the HDI. The HDI is the Human Development Index. And this is an index developed by the UN to rank countries into four levels of human development. And what it does is it takes economic and social development into consideration. And the indicators used are life expectancy, educational attainment, and income. And then the index is a number between 0 and 1.
Again, I went to this website. I found a list of countries. And it ranks them into four quartiles-- very high, high, medium, and low. So I just put down some examples here so that you could see. But if you wanted to see the entire chart, you could go to that website and check it out. But you can see some of the countries who are listed in each of the quartiles.
And then I also found this map that shows it by color code in terms of the world. So on average, countries that are dark blue are in that very high. And this color blue are in the high. Light blue are in medium. And the lightest blue, unfortunately, those countries are experiencing the lowest HDI figures. So it just in case you're interested in where some of this information came from, if you wanted to look at it in more depth, there are two links for you, one from the World Bank and one from the United Nations HDI.
So in this tutorial, we looked at the shortcomings of just using GDP alone as a way to measure quality of life. And we talked about some current trends in poverty rates and income disparity. We looked at some quality of life indicators that can be used in addition to GDP to give us a better idea of quality of life. And finally we talked about HDI. And hopefully now you understand what that's all about.
Thanks so much for listening. Have a great day.
Labor Force Participation Rate
Percent of the population actively seeking work and defined as being able to do so.