This is a short note on the methodology employed by CSRM to calculate a quarterly living standards index and cost of living index for Australia. In this research, the author considers standard of living from an income based financial perspective. This measure compares income growth for Australian households with their cost of living. The ratio of income to costs being their standard of living. Where incomes are increasing at a faster rate than the cost of living the standard of living index shows an increase in living standards. Where those costs are rising more quickly than incomes living standards decline.
There are a number of other measures in Australia currently available that are often used as a proxy for household living standards, such as the ABS’ Gross National Income measure but this is not a measure that is defined for households, rather the entire economy. The ABS also publish a household version of the national accounts; however, this version has an expanded version of household income, including not-for-profit firms and imputed rents for owner occupier housing and does not account for population change or cost of living changes.
These aggregate measures don’t allow us to calculate living standards indexes for a range of households. The ANU estimate calculates living standards based on a range of household income and expenditure surveys between 1988 and 2015-16. Using a survey based approach allows us to not only calculate living standards for Australia but to also calculate living standards for a wide range of household types – allowing a much more detailed understanding of which groups are affected by movements in living standards.