A Decent Standard of Living

Having enough wealth for a decent standard of living is key to development. The average individual in a developed country earns a much higher income than the average individual in a developing one. Geographers observe that people generate and spend their wealth in different ways in developed countries than in developing countries.

Income

The U.N. measures the standard of living in countries through a complex index called annual gross national income per capita at purchasing power parity. Gross national income (GNI) is the value of the output of goods and services produced in a country in a year, including money that leaves and enters the country. Purchasing power parity (PPP) is an adjustment made to the GNI to account for differences among countries in the cost of goods. For example, if a resident of country A has the same income as a resident of country B but must pay more for a Big Mac or a Starbucks latte, the resident of country B is better off.

GNI Per Capita PPP, 2017

GNI per capita PPP is highest in developed countries. The lowest figures are in sub-Saharan Africa and portions of Asia.

GNI Per Capita PPP, 2017

Developed and developing countries each have around half the world's total GNI.

By dividing GNI by total population, it is possible to measure the contribution made by the average individual toward generating a country’s wealth in a year. For example, GNI in the United States was approximately $22 trillion in 2018, and the population was approximately 330 million, so GNI per capita was approximately $60,000. In 2018, per capita GNI was approximately $44,000 in developed countries compared to approximately $12,000 in developing countries.

Some studies refer to gross domestic product (GDP), which is also the value of the output of goods and services produced in a country in a year. GDP does not account for money that leaves and enters the country.

Per capita GNI–or, for that matter, any other single indicator–cannot measure perfectly the level of a country’s development. Only a small number of people may be starving in a developing country with per capita GNI of a few thousand dollars. And not everyone is wealthy in a developed country with per capita GNI of $44,000. Per capita GNI measures average (mean) wealth, not the distribution of wealth. If only a few people receive much of the GNI, then the standard of living for the majority may be lower than the average figure implies. The higher the per capita GNI, the greater the potential for ensuring that all citizens can enjoy a comfortable life.

Economic Structure

Average per capita income is higher in developed countries because people typically earn their living by different means than in developing countries. Jobs fall into three categories:

The primary sector includes activities that directly extract materials from Earth through agriculture (as discussed in Chapter 9) and sometimes by mining, fishing, and forestry.

The secondary sector includes manufacturers that process, transform, and assemble raw materials into useful products as well as industries that fabricate manufactured goods into finished consumer goods (discussed in Chapter 11).

The tertiary sector involves the provision of goods and services to people in exchange for payment, such as retailing, banking, law, education, and government (discussed in Chapters 12 and 13).

The contribution to GNI among primary, secondary, and tertiary sectors varies between developed and developing countries. The share of GNI accounted for by the primary sector has decreased in developing countries, but it remains higher than in developed countries. The low share in developed countries indicates that a handful of farmers produce enough food for the rest of society. The share of GNI accounted for by the secondary sector has decreased in developed countries and is now less than in developing countries. The share of GNI accounted for by the tertiary sector is relatively high in developed countries, and is now growing in developing countries.

Economic Structure

The graph shows the changing contribution to GNI by the three sectors of jobs.

Pause & Reflect 10.1.2

the above graph shows the percentage of workers engaged in agriculture. Does a country with a high percentage of agricultural workers, typically have a high HDI or low HDI?

Productivity

Workers in developed countries are more productive than those in developing countries. Productivity is the value of a particular product compared to the amount of labor needed to make it. The World Bank measures a country's productivity by dividing the total GDP by the number of persons employed. GDP per employee exceeds $100,000 in North America and Europe, compared with around $10,000 in sub-Saharan Africa.

Productivity

The World Bank measures productivity as GDP per person employed.

Workers in developed countries produce more with less effort because they have access to more machines, tools, and equipment to perform much of the work. On the other hand, production in developing countries relies more on human and animal power. The larger per capita GNI in developed countries in part pays for the manufacture and purchase of machinery, which in turn makes workers more productive and generates more wealth.