Living standards differ within and between countries because of differences in jobs, skills, wealth, resources and government policy.
Living standards differ between countries for many reasons. These include how much each worker makes, schooling, health care, investment, natural resources, peace and access to trade. Countries with skilled workers and modern machines make more per person.
Within a country, income differs between people. Skilled workers earn more than unskilled workers. Some people own wealth, such as homes and shares, which earns rent, interest and dividends.
Other reasons include where people live, such as city or countryside, and their age and health. Unfair treatment of some groups matters, and so does how many people in a home earn money.
Government policy also shapes how income is shared. Progressive taxes and welfare payments narrow the gap. Low taxes and little welfare leave a wider gap.
- Between countries
- Productivity, education, health, investment, resources, stability, trade.
- Within countries
- Skills, wealth, location, age, health, discrimination.
- Policy
- Progressive taxes and welfare narrow income gaps.
Worked example: Explaining a gap within a country
Why might average incomes in a capital city be far higher than in rural areas?
- Jobs: high-paying jobs in finance and technology cluster in cities.
- Skills: more people with university education live in cities.
- Productivity: farms in rural areas may use little machinery.
- Services: better schools and hospitals in cities raise skills and health over time.
Watch out for this
Differences in living standards are only due to some people working harder.
Effort plays a part, but skills, education, wealth, location, health and government policy are major reasons.
Check your understanding
Which factor most likely explains why one country has a higher income per head than another?
- Its workers have more education and use more modern machinery.
- It has a larger population.
- Its prices are higher.