What this lesson teaches
I can explain why living standards and income distribution differ within and between countries.
Syllabus K343, 5.1.2. Comparing living standards and income distribution: reasons for differences in living standards and income distribution within and between countries
Make a guess
Why do people in cities often earn more than people in the countryside of the same country?
- The government pays city workers more by law than rural workers.
- Cities have more high-skill jobs and better schooling.
- City people work harder and for longer hours than rural people.
Show the answer
Cities have more high-skill jobs and better schooling.
Jobs in finance and technology cluster in cities, and city workers often have more education and better tools, so they produce more.
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.
- Its prices are higher, so the same goods are worth more there.
- It has a larger population, so more people are working.
Show the answer
Its workers have more education and use more modern machinery.
Right. Higher productivity raises output and income per person.
Check your understanding
Two countries have the same real GDP per head. Why might living standards be lower in one of them?
- Its prices are measured in a different year
- Its total GDP is the same as the other's
- Its income is shared much less equally
- Its population is smaller than the other's
Show the answer
Its income is shared much less equally
Right. An average hides how income is spread; many people may have far less than it.