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GDP and Society Standard of Living

How well does GDP Measure the Standard of Living of a Society?

Written by Jason Gordon

Updated at March 17th, 2023

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How well does GDP Measure the Standard of Living of a Society?

While GDP includes spending on recreation and travel, it does not cover leisure time. Clearly, however, there is a substantial difference between an economy that is large because people work long hours, and an economy that is just as large because people are more productive with their time so they do not have to work as many hours. 

Size of GDP does that prove that the standard of living between countries is higher.

 While GDP includes what a country spends on environmental protection, healthcare, and education, it does not include actual levels of environmental cleanliness, health, and learning. 

GDP includes the cost of buying pollution- control equipment, but it does not address whether the air and water are actually cleaner or dirtier. GDP includes spending on medical care, but does not address whether life expectancy or infant mortality have risen or fallen. Similarly, it counts spending on education, but does not address directly how much of the population can read, write, or do basic mathematics.

GDP includes production that is exchanged in the market, but it does not cover production that is not exchanged in the market. For example, hiring someone to mow your lawn or clean your house is part of GDP, but doing these tasks yourself is not part of GDP. One remarkable change in the U.S. economy in recent decades is the growth in women’s participation in the labor force. 

GDP has nothing to say about the level of inequality in society. GDP per capita is only an average. GDP also has nothing in particular to say about the amount of variety available. 

Likewise, GDP has nothing much to say about what technology and products are available. 

In certain cases, it is not clear that a rise in GDP is even a good thing. 

The fact that GDP per capita does not fully capture the broader idea of standard of living has led to a concern that the increases in GDP over time are illusory. 

It is theoretically possible that while GDP is rising, the standard of living could be falling if human health, environmental cleanliness, and other factors that are not included in GDP are worsening. Fortunately, this fear appears to be overstated.

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