Standard of living/ The UK economy
Introduction
The benchmarks that are used by economists to compute the living standards mainly uses two approaches at the micro and macroeconomic levels. Macroeconomics makes use of the aggregate gross domestic product per capita to calculate the economic well-being (McGillivray & White, 2006). This done through a conversion of the various currencies into one standard of reference, mostly the US Dollar, basing the real value of the GDP that has been adjusted; the measure of the economic well being is derived from approach that uses the aspect of “one number per country”. Microeconomics on the other hand computes the standards of living basing on income distributions that are expressed as average income per individual (Myles & Nigar, 2009). It is arguably evident that these approaches to assessment of the standards of living are likely to result to different results. The real value of GDP capita framework extends beyond measuring the consumption at the household levels. In addition, the use of real value GDP does not take into consideration the income distributions within the households in a country. Income distribution on the other hand serves to measure only the sustainable differences in the levels of consumption by the public, which may conceal the actual state of living standards in a country. This paper provides a comprehensive discussion of the concept of a standard and living. In addition, the paper provides an overview of the difficulties in measuring the living standards in the United Kingdom and makes comparisons of the living standards of people in different countries (McGillivray & White, 2006).
Concept of standard of living
The concept of standard of living is one of the economic variables that are used in measuring the welfare of the people of a given country. The concept of the living standards is diverse and mostly signifies the level of economic achievement that has been attained by households and individuals of a given country (World Bank, 2003). It can also be used to gauge the economic goals, which have been set by the various households and individuals from the consumer point of view. With this regard, the living standards can be quantified using the amount of wealth, material commodities and the necessities that are accessible to particular socio-economic groups of people in a given country (World Bank, 2003). In addition, the concept of living standards makes use of variables such as the level of income, the quality and the rate of employment, disparity in socio-economic classifications, the rate of poverty, the worth and the relative prices of homes, GDP, rates of inflation, accessibility to quality healthcare and other social services such as education, the cost of commodities and services, life expectancy, the rate of economic growth of the state, the level of fiscal and political steadiness, quality of the environment and prevalence of disease outbreaks. Basing on the above criteria, it can be deduced that the living standards mostly depicts the rank of wellness of people, households and firms as calculated on the identified variables. The most accepted economic approach to view the concept of living standards is to calculate the mean actual value of the Gross Domestic Product per capita, whereby GDP measures the rate of yearly economic output, actual GDP refers to the GDP that has been adjusted according to the inflation rates while the mean Gross Domestic Product per capita signified the amount of individual GDP if it was divided into equal fractions (World Bank, 2003).
Economic well-being of the citizens of a country is one of the significant indicators that can be used to determine the level of living standards in a country. On a wide perspective, economic well being can be used to mean the resources that are accessible and available to the individuals and households of a country (Myles & Nigar, 2009). The primary area of concern with regard to the resources available does not depend on the consumption in isolation, rather the capacity of the households to consume the resources and their respective capabilities that the resources facilitate involvement of the households in the society. In the case of developed countries, there is high social stratification, and that social involvement is mostly influenced by the variations in the resources that are accessible by the individuals basing on their affordability. This is the case in the United Kingdom whereby there is increased reliance on the citizens to buy commodities and services associated with provision of healthcare and education (Myles & Nigar, 2009).
Measuring inequality is also central when computing the standards of living. In fact, having statistics on income inequality can help in eliminating the flaws in the current frameworks that are used for determining the living standards of various countries. The fundamental inference from this observation is that the frameworks that are used for measuring the levels of standards of living should be comprehensive and should take into consideration both the aspects of income distribution and consumption levels in order to facilitate a comparison of the standards of living (Myles & Nigar, 2009). Such a multi-faceted approach based on both macro and micro-economic levels plays an integral role in eliminating the difficulties when computing the standards of living within countries and undertaking a cross-country comparison of the same. The following section provides an overview of the economy of the United Kingdom and the economic variables that are useful when determining the living standards in the country (McGillivray & White, 2006).
The economy of the United Kingdom in context
The economy of the UK ranks at sixth position in the globe when calculated basing on the GDP and ranks seventh when calculated on the purchasing power parity. The economy is the third in Europe basing on the nominal GDP and second when calculated on the purchasing power parity. UK is one of the most developed and globalised countries in the world, with London being the largest financial centre in the world and being the largest city Gross Domestic Product in Europe. Economic statistics reveal that the nominal GDP during 2010 was USD 2.25 trillion and the GDP basing on purchasing power parity was USD 2.17 trillion (OECD , 2011). The nominal Gross Domestic Product per capita during 2010 is estimated to be USD 36,120 and the Gross Domestic Product per capita basing on the purchasing power parity is estimated to be USD 34,920 (OECD , 2011). The current rate of inflation is 5.2 percent as of September 2011 marked an increase from the inflation rate of the previous month by 0.7 percent. With regard to the number of individuals below the poverty line in the UK, 14 percent of people having household income are below 60 percent of the UK’s median income. The estimated population in the UK labor force comprise of 31.45 million individuals while the unemployment rate as of September 2011 is 8.1 percent. The average gross salary in the UK on a monthly basis is USD 5,546 (€4108) while the average monthly net salary is USD 3,712 (€2749). The presented economic statistics of the United Kingdom can be deployed in measuring the living standards in the country (OECD , 2011).
The benchmark that is used for calculating the living standards in a particular country is to deploy the actual national income per capita, which is derived by dividing the actual national income by the total population. The graph shown below reveals the trends in the per capita GDP for the United Kingdom (Myles & Nigar, 2009).

Measuring the living standards and difficulties in measuring this within one country and making comparisons
There numerous difficulties in using numerical quantities in attempting to compare the material standards of living among different countries. This is not the case when making use of the Pareto index, which calculates the level of earnings and the allocation of wealth in a country basing on the Pareto principle and Pareto distribution (Myles & Nigar, 2009). There is a possibility that the concept of living standards is naturally subjective. For instance, countries that have a small population in the extremely wealthy upper class and a relatively large population of poor people in the very low poor class is likely to report an high average income despite the fact most of its population are under low living standards. This is also the case of measuring the levels of poverty, which is usually relative. It is arguably evident that using such an approach in measuring the living standards for a country is misleading and can camouflage the real living standards in the country (Myles & Nigar, 2009).
On a similar account, say a completely socialist nation X using planned economy that is characterized by a small mean per capita earnings is likely to reveal a relatively higher level for the case of low income inequality compared to a country Y that has high levels of income inequality among its population, regardless of bottom segment of the population distribution of country Y being characterized by high amounts of per capita earnings compared to Country X. In an ideal situation, this case is denoted by the previous East Germany in comparison with West Germany, whereby the socialist state is characterized by low earnings inconsistency and lower amounts of per capita earnings (Myles & Nigar, 2009). Such flaws in measuring the living standards can be alleviated by calculating the income levels at specific country’s population percentiles instead of adopting an extremely relative framework and measuring the levels of income inequality in the entire population.
Living standards in countries can be calculated using diverse approaches. The most common frameworks that are used in calculating the living standards include the Income Method, the consumption scheme and private consumption expenditure scheme. Conventionally, income denotes the earnings that are derived from meaningful and productive work. It usually encompasses the claims by households with regard to commodities and services (Myles & Nigar, 2009). Consumption denotes the amount of resources that have been used by the households using the income.
One approach in measuring the level of living standards is to calculate it basing on fraction of the earnings that common people usually spend in order to meet their basic requirements. In this approach, food is used as a reference point for calculating the levels of expenditure. Using this framework, the higher the levels of income that is spend by the population of a country, the lesser the level of the standards of living for that particular country. The constraint imposed by using this approach only is that it is not effective in revealing the actual consumption values in a country. In addition, it is usually hard to collect statistics about the percentage of people’s earnings that are used on food and other commodities. This implies that this approach does not reveal the actual living standards in a country (World Bank, 2003).
The second approach used in measuring the living standards in a country is to use statistics regarding private consumption spending, which denotes the values of commodities and services acquired by people in a country over a given duration of time. Other approaches used in calculating the living standards include the computation of the average personal income of the people in that particular nation. The average earnings less the taxes denote the amount that people have to spend to meet their basic requirements and save the remaining amount (McGillivray & White, 2006). The living standards can also be obtained by dividing the annual output produce of a nation by its total populace. These approaches however have diverse setbacks, which are discussed below.
With regard to the Private Expenditure method, it serves to reveal the living standards for only the average citizens, which does not take into consideration the living standards of all the citizens in a country. For instance, when comparing two countries X and Y, which have a per head consumption spending of USD 500, there is a possibility that total population of country X may opt to use up a similar amount of USD 500, implying that the living standards will be equal for all the people in the country. On the contrary, country Z has only few people that can expend at USD 500 and that the rest of the citizens are poor, yet using this approach will still value the living standards at USD 500, which is not the actual case for the country Z that actually has poorer living standards that this method is not likely to reveal. Another disadvantage of using the private consumption spending method to compute the living standards is that it is not effective when making comparisons of the living standards between different countries at an international level (Myles & Nigar, 2009). This is due to diverse factors including variations in the rates of legal tender exchange, variations in the distribution and availability of commodities and services in different countries and different ideas relating to the consumption rates of the different nations. Food, shelter and clothing are usually considered as a basic requirement in all countries. On the contrary, other items may be regarded as basic or not basic, according to the country and is influences by factors such as consumer tastes that are subject to change across countries. McGillivray & White (2006) claim that such variations in the consumption variables among countries imply that the private consumption spending cannot be effective in making a cross-country comparison of the standards of living. In addition, there are significant variations with respect to the total amount of food supply among different countries depending on the type of economic system, whether the country is an industrial or an agricultural economy and the level of economic development in the country. These variations are significant bottleneck when making international comparisons of the standards of living of diverse countries (Myles & Nigar, 2009).
Conclusion
When comparing the living standards between different countries, it is important to take into consideration the factors that are likely to impose variations in the economic variables that affect the living standards. The first issue to take into account is the monetary value, which is likely to impose significant problems during output comparisons of various countries across different periods. This also helps in assessing the pressures associated with inflation relating to the erosion of the real value of currency, which can in turn impose some significant changes in the national output. Inflation is the increase in price of commodities and services over a given period. This implies that such an increase results to a unit of currency buying fewer commodities compared to an earlier time. An inference that can be made from this is that inflation can be used to denote an erosion of the purchasing power, which simply means a reduction in the currency value as a measure of the medium of exchange and a unit of account in a country’s economy. The inflation rate is the principal measure of the inflation rate and is determined by the annual percentage change in the Consumer Price Index over a given duration of time. Changes in population should also be taken into account when measuring the standards of living within a country. The basic inference is that an increase in national output does not necessarily translate to an improvement in the standards of living in cases whereby there is an equal increase in the size of the population. As such, it is vital to express the GDP and levels of national income on a per capita basis. The role of the government should also be taken into consideration when calculating the standards of living in a country. For instance, increased government expenditure on military will not result to an improvement in the living standards. Government expenditure on social services such as healthcare and education usually tends to improve the standards of living. In most case, government spending is not very effective, and that living standards are improved if the expenditure was made by the private sector. Environmental concerns such as the concept of sustainable development should be taken into account when measuring the living standards in developed countries such as UK; this plays an integral role in the accurate interpretation of economic figures. A key characteristic of the UK economy is an unfair distribution of the economy, implying that a per capita income that has the highest income earners in the country is likely to report a misleading measure of the living standards compared to actual living standards for its citizens. The Lorenz curves and Gini coefficients are vital in the analysis of income distribution within an economy. Most of the developed nations are characterized by poor income distribution, with the UK having a notable south/north divides, which is contrary to the case of most developing countries that have equal income distribution.

References
McGillivray, M. & White, H., 2006. Measuring development? The UNDP’s human development index. Journal of International Development, 5(2), pp.183-92.
Myles, J.B. & Nigar, H.G., 2009. A dictionary of economics. Oxford : Oxford University Press.
OECD , 2011. OECD Economic Surveys: United Kingdom 2011. London: OECD Publishing.
World Bank, 2003. World development indicators 2003. Washington: World Bank Publications.