There is significant academic, policy and media interest in living standards and how they are changing. Australia does not have a measure of living standards with a specific focus on households and this index remedies this. The ANU Centre for Social Research and Methods has developed a new living standard index (the ANU Living Standards Index) and this Research Note provides an overview of the methodology and analyses how it compares to other measures often used as a proxy for living standards.
The ANU Living Standards Index conceptualises living standards using a narrow financial measure based on the disposable income of households. The index is derived from official Australian Bureau of Statistics (ABS) data sources. The specific data sets used are Household Expenditure Surveys (HES) since 1988, the Survey of Income and Housing (SIH) since 2000-01, detailed capital city based Consumer Price Index (CPI) data, National Accounts and housing finance statistics.
There are a number of other measures that are sometimes used as a proxy for living standards. These include the Real Net National Disposable Income (RNNDI) and Gross Domestic Product Per Capita (GDPPC). RNNDI adjusts the volume measure of GDP for the terms of trade effects, real net incomes from overseas and consumption of fixed capital. Relative to the GDP measure the terms of trade is mostly where differences in growth rates occur. The measure is an economy-wide measure and so includes incomes received by companies in addition to the households sector. RNNDI is often thought of as a superior measure of well-being compared to GDP.
The ANU living standards measure relates only to the households sector. Being based on ABS income surveys it excludes the not-for-profit sector which the national accounts household sectoral accounts include. We attempt to derive a measure of living standards that best matches the lived experience of Australian households rather than that of the entire economy – as is the case for RNNDI. We would expect that all three measures over the long-run would be quite similar in terms of overall growth in living standards, however, divergences in growth rates are likely in the short to medium term.