The standard of living of an economy refers to both the quantitative and qualitative wellbeing of the people. This includes both the material and non-material aspects of living. Some indicators of the standard of living in the Singapore economy in 2011 include Gross Domestic Product (GDP) growth rate, population growth rate, inflation, and unemployment rate.
Singapore’s GDP growth rate in 2011 was 4.9% at 2005 prices. GDP measures the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, usually calculated annually. By measuring GDP growth rate at 2005 prices, inflation is taken into account. Furthermore, with total population only growing by 2.5%, the larger GDP growth rate indicates that GDP per capita is increasing. As such, an average Singapore consumer can afford to consume more goods and services. This indicates an increase in the quantitative aspect and hence improvement of the standard of living. However, while it is apparent that there is an increase in real GDP per capita, the statistics are insufficient to reveal whether this increase is enjoyed by majority of the population. If the bulk of GDP increase is concentrated in the hands of the wealthy, few people in Singapore may benefit from the increase in GDP and material wellbeing. The increase in GDP will only be leading to widening income inequality. In this case, the Gini coefficient, which measures income inequality, is crucial to be analysed in conjunction with GDP growth rates for a more comprehensive conclusion. Likewise, without knowledge of Gini coefficient, comparing Singapore’s change in standard of living with other economies is difficult. Also, using GDP per capita growth rate for comparison with other economies may lead to misrepresentation of the change in the standard of living as prices of goods and services differ from economy to economy. The usage of purchasing power parity (PPP) will offer a more accurate representation. Moreover, the absence of environmental indicators is another concern if the GDP per capita growth rate were to be compared with other economies in isolation. For instance, China’s high economic growth averaging around 10% for the past decade has not necessarily led to substantial improvement in standard of living as environmental degradation and pollution has led to decreased life expectancy in the north, severe water contamination, and land deterioration. A higher GDP per capita growth rate may not be more desirable if it occurs at the expense of widening income inequality and environmental degradation. In 2011, Singapore’s inflation is relatively high at 5.2%. Inflation is the general increase in price level of the economy measured by the consumer price index, which takes into account the cost of buying some fixed basket of consumer goods and services of a typical household. High inflation indicates a fall in real value of money and affects fixed income earners most as they are required to pay more to purchase the same product, leading to a lower purchasing power. Producers, however, may receive higher profits as price may rise faster than cost. Hence, high inflation can also widen income inequality. Standard of living is expected to fall. However, inflation is again a multi-faceted indicator. The root cause of inflation is crucial in offering an accurate assessment on the change in standard of living. A high inflation rate due to demand-pull inflation as the economy is pulling out from a recession is less undesirable than a high inflation rate due to cost-push inflation. As shown in figure 1, demand-pull inflation caused by an increase in AD from AD1 to AD2 will lead to an increase in general price level from P1 to P2. However, this is accompanied by an increase in real national income from Y1 to Y2, and hence increasing employment. Contrastingly, cost-push inflation caused by a fall in short run AS from AS1 to AS2 will lead to an increase in general price level from P1 to P2 but a fall in real national income from Y1 to Y2 and fall in employment. In the first scenario, more people in Singapore will have higher purchasing power and can afford more goods and services. This is opposite to that in the second scenario. Hence, it is difficult to determine the change in standard of living based on inflation rate without knowing the root cause of inflation.
The above applies to comparison with other economies as well. Furthermore, as the inflation rate is measured by the consumer price index, it may not be homogeneous across all countries as different countries have different basket of goods and services and different living conditions. This lack of consistency will reduce accuracy when comparing change in standard of living. Singapore’s low unemployment rate of 1.9% is another indication of the improvement to the quantitative aspects of the standard of living. Unemployment rate refers to the proportion of the population that are of legal working age, willing and able to work but are unable to find employment. A low unemployment rate will allow more people to be able to afford goods and services. The qualitative aspects of standard of living are also potentially improved due to lesser social problems such as lowered crime rates and lesser instances of social unrest. However, while unemployment rate is a clear indicator of the proportion of jobs available to the work force, it does not display the quality of jobs available. As such, even while unemployment rate may appear to be low, much of it could be due to underemployment. This limits the improvement of living standards as people are not gainfully employed and have to settle for a lower skilled and lower paying jobs. When comparing with other countries, it is also important to have detailed statistics categorising the kind of unemployment suffered by the economies. An economy suffering from unemployment mainly due to frictional unemployment has different implications compared to another economy with of unemployment mainly due to frictional or structural unemployment. An economy with structural unemployment due to restructuring of the economy may have difficulty reducing its unemployment rate unless there is successful education and retraining programmes already in place. Many people who were previously employed may be retrenched and they are required to upgrade their skills to work in higher skilled industry, which requires time and is more challenging for senior people. Likewise, an economy suffering from cyclical unemployment will mean that there is a fall in aggregate demand and hence national income. Thus, both types of unemployment would indicate a worsening standard of living compared to an economy with mainly frictional unemployment, as it indicates the interim period during job search. When the above mentioned statistics are considered together, it offers a rather decent view of the change in standard of living mainly regarding the quantitative aspect. However, the qualitative aspect of standard of living is difficult to be inferred from the above statistics. While real GDP per capita growth and unemployment do offer some glimpse and indication of the qualitative aspect of the standard of living, as we can expect economies with higher real GDP per capita growth to be better able to afford healthcare and education which improves qualitative aspect of standard of living, we still require concrete evidence in order to draw definite conclusions. As mentioned above, the change in standard of living due to real GDP per capita growth can only be accurately determined when income inequality is considered. Gini coefficient is thus crucial in the analysis. As Gini coefficient in Singapore has generally risen over the past decade, improvement in the standard of living due to real GDP per capita growth may not be felt by the mass majority and only for the wealthy. In this case, a country with lower real GDP per capital growth but with reduction in the income inequality may experience a higher improvement in standard of living than Singapore. Naturally, it is also important to look beyond Gini coefficient and into the specific income distribution as countries with similar Gini coefficient may have rather different income distribution due to the derivation method. Also mentioned above, environmental indicators must also be considered as environmental degradation will not only result in illness and death but also impede future growth due to worsening environmental conditions. The Human Development Index (HDI) should also be considered as it is a more comprehensive statistic indicating standard of living. The HDI comprises of 3 dimensions, including life expectancy, education, and income. Life expectancy and education is extremely important as it reflects the quality of life. There are also numerous other indicators to reflect the standard of living, especially on non-material well-being, including Happy Planet Index, crime rates, working hours, economic freedom, and social security. In conclusion, the provided statistics are limited in assessing the change in standard of living in the Singapore economy in 2011 and comparing it with that of other economies as the scope of coverage by the statistics are restricted mainly to the quantitative aspect of standard of living. Furthermore, there is a lack of time-series data for meaningful comparison with the previous year. In additional, other available and important statistics that also indicates the qualitative aspect of standard of living must also be employed for a comprehensive and accurate assessment. |
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