Real GDP per head measures average income; the HDI adds health and education for a wider view of living standards.
Real GDP per head is real GDP divided by the population. It shows the average output, and so the average income, per person. It is easy to calculate and to compare over time.
Its weaknesses: it is an average, so it hides inequality. It ignores unpaid work, such as caring for family, and the hidden economy. It says nothing about pollution, working hours or health. Comparing countries also needs adjusting for different price levels.
The Human Development Index (HDI) combines three things. Health is measured by how long people are expected to live. Education is measured by years of schooling. Income is measured by national income per head. The score runs from 0 to 1, and higher is better.
The HDI gives a broader picture than income alone. But it still leaves out inequality, the environment, political freedom and the quality of education and healthcare.
- Real GDP per head
- Real GDP / population: average income.
- HDI components
- Life expectancy, years of schooling, income per head.
- Limits
- Averages hide inequality; omit environment, unpaid work, freedom.
Worked example: Comparing two countries
Suppose Country A has higher GDP per head than Country B, but a lower HDI.
- GDP per head says A's people have higher average income.
- The lower HDI suggests A does worse on health or education, for example shorter lives or fewer years in school.
- Conclusion: income alone may overstate A's living standards.
- Better judgement: use both indicators, plus data on inequality.
Watch out for this
A country with high GDP per head must have a high standard of living for everyone.
GDP per head is an average. A few very rich people can raise it while many others stay poor. It also ignores health, education and the environment.
Check your understanding
Which of these is part of the Human Development Index?
- Life expectancy
- The unemployment rate
- The inflation rate