GDP is not always a good measure for standard of living

Why GDP per capita is not always a good measure for standard of living?

Answer may be:

There are several potential problems when using per capita national income.

o   Inflation can boost national income over time and create the impression of rising living standards when in fact output is unchanged. This can be overcome by using real national income per capita.

o   The per capita figure assumes an equal distribution of income in the country, but this may be misleading. If there are a few very rich people and many poor, there could be a healthy per capita national income, but it would not represent the living standards of the people accurately.

o   The figure gives no indication of the working hours or conditions endured by people when producing the output. Long hours in unpleasant conditions could generate a high per capita national income, but people may have fairly miserable living standards.

o   The figure gives no indication of the externalities created by producing the output. If pollution levels are very high, people may not feel very well off, but the per capita national income suggests they have a good living standard.

o   The national income figure excludes goods and services that people produce for their own consumption (eg home grown vegetables). Such output improves their living standard, but the per capita national income does not reflect it. In countries with high levels of subsistence, this is a particular problem.

o   The national income figure does not include any production that takes place in the black economy because this activity is illegal. However, output generated by the black economy improves living standards, but this is not shown in the per capita national income.