National Income Data

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National income is used to assess changes in living standards in a country, and between countries, over time. But it is not a perfect measure.

National income is defined as the total value of goods and services produced in an economy in a given period of time.
It is the same as national output, or GDP.
Higher GDP is often correlated with higher incomes and so a higher standard of living.
We can use national income data over time to see whether people are generally getting richer over time or not.

Although national income data is a good starting point to compare the standards of living in countries, it has its issues.
- Two countries could have the same level of GDP (national income), but the country with a larger population will have a lower ‘average’ GDP per person. So we can improve national income data by looking at GDP per capita (GDP divided by population).

Two countries could have the same level of GDP (national income), but their cost of living could be higher in one country.
So, the same income purchases fewer goods and services, and quality of life will be poorer.
Rather than using current GDP, we should use real GDP.
Nominal GDP, is also known as GDP at current prices – it means the GDP data has not been adjusted for inflation.
Real GDP is inflation adjusted. Adjusting for 'Purchasing Power Parity' may help to solve this issue.

Some countries, especially developing countries, have poor data collection agencies which means the quality of the GDP data is weak.
The shadow economy is illegal activities that create GDP but are not recorded in the formal economy.
- E.g. the sale of illegal drugs or undeclared 'cash-in-hand' transactions.
Some countries add an estimate for the shadow economy.
Two countries could have same reported real GDP, but one may have a larger shadow economy, so actual income is higher.

National income is an aggregate of the countries entire output. But often there is variation.
- E.g. in the UK, over 25% of GDP is created in London.
Two countries could have the same GDP but the income and wealth could be distributed differently.
E.g. Qatar has a high GDP per capita, but it is not distributed very equally.

There are further reasons why national income data may not be a reliable measure.

If a country can produce the same amount of goods and services as another, but in a shorter time, that country is said to be more productive.
- So, they will have more leisure time.
Gross Domestic Product (GDP) only measures traded goods and services, but it misses goods and services not sold at market price.
- E.g. going for a run will not show up in GDP, whereas joining a gym will.

GDP measures the total value of goods and services produced but it doesn’t take into account the cost of making that output.
A country could have a high GDP but it could be using up all of its raw materials, minerals in doing so. So it is unsustainable.
Sustainability is defined as “the ability to meet the needs and wants of the current generation, without compromising the ability of future generations to meet their needs and wants”.

GDP measures the total value of goods and services produced in an economy. But, it doesn't make a distinction between those goods and services that add to quality of life, and those that do not.
- E.g. if someone sprays graffiti on a subway, and the council pay to clear it up, there has been no net change to anyone’s quality of life, but GDP was created.
- These are "negative expenditures".

Two countries could have the same level of GDP, but one could be spending on healthcare and investing in the future of its country with 'capital spending', and the other on smoking and unhealthy food.
The former has prioritised future consumption but the latter has prioritised current consumption.
The quality of life will differ in the short and long term for each country.

National income data can not measure national happiness.
Wellbeing is influenced of a number of factors:
- The condition of family relationships.
- Financial security.
- Job security.
- Supportive friends.
- Good health.
Interestingly, there is not automatically a positive correlation between wealth and happiness.
- Happiness is a subjective concept.
- Arguably, people feel happier through comparing their income to others.