Income and Quality of Life Indicators
Expert reviewed • 21 July 2024 • 8 minute read
In economics, understanding how income levels influence quality of life is crucial for assessing the effectiveness of economic policies and development strategies. Income is a crucial determinant of an individual's or a country's standard of living. This, however, is not the only factor that influences the economy's overall well-being. Quality of life indicators, such as health, education, social support, and environmental quality, play a significant role in shaping the living conditions and life satisfaction of populations.
What is the Connection Between Income and Quality of Life?
Income is often seen as a primary determinant of quality of life. Higher income levels generally allow individuals and communities access to better healthcare, education, and essential services, which in turn improve their overall quality of life.
Key Quality of Life Indicators:
- Health: Higher income enables better access to medical services, healthier food options, and living conditions that promote good health.
- Education: With more financial resources, individuals can afford better education for themselves and their families, which contributes to higher literacy rates and better job opportunities.
- Living Standards: Income levels affect the quality of housing, access to clean water and sanitation, and the ability to afford comforts and conveniences that enhance daily life.
For example, the World Bank found that countries in the highest income category had an average life expectancy of 80.7 years in 2019, compared to 64.3 years for countries in the lowest income category. Additionally, schooling years among income categories were 12.2 years and 5.6 years respectively. More data such as this can be found on the World Bank's website: World Bank Life Expectancy Stats
Looking at the following graph we can see the disparities in education levels achieved across different income brackets within a country, highlighting the educational opportunities afforded by higher income levels.
As we can see from the graph, on a global scale, higher income earners are significantly more likely to achieve tertiary education than lower or middle class income earners.
The Easterlin Paradox:
The Easterlin Paradox, named after economist Richard Easterlin, highlights the complex relationship between income and subjective well-being or happiness. Easterlin observed that while higher incomes are associated with higher levels of happiness within an economy, increases in income over time do not necessarily lead to corresponding increases in happiness.
This paradox suggests that relative income, rather than absolute income, may be a more important determinant of subjective well-being. This is because people tend to compare their income and living standards to those of their peers and to their own past experiences. As a result, even as incomes rise, people may not feel happier if they perceive that others are doing better or if their aspirations grow along with their incomes.
Policy Implications regarding Income and Quality of Life
During policymaking campaigns, governments must take into account and examine the relationship between income and quality of life indicators. While promoting economic growth and raising incomes is crucial for improving living standards, policymakers must also focus on enhancing other dimensions of well-being. This involves investing in economic development such as healthcare, education and social protection systems. This, in turn, can help ensure that the benefits of economic growth are shared more equally among individuals in the economy.
Additionally, fiscal policy can be used to address disparities in wealth and income. This occurs in the form of policies such as progressive taxation and minimum wage laws. When implementing these policies, governments must recognise their limitations and overall goals. This is important as some policies may cause conflict between set economic goals.