NCPA - National Center for Policy Analysis

Living Standards Rose Faster Than Previously Thought

May 23, 2000

Many economists think that the old system of measuring living standards by real income growth per capita underestimates increases. A new way of measuring living standards accounts for conditions such as health, recreation time, quality changes and technology revolutions that the standard system misses.

According to this alternative measuring system, standards of living rose faster than previous estimates. Between 1971-1991, increases in living standards were double the official rate.

The new system measures spending on recreation on the assumption that leisure goods are purchased with income left after providing for necessities such as food, clothing and shelter.

  • For instance, in the late 1880s, 2 percent of household income was devoted to recreation; by the mid-1930s it was 4 percent; and by 1991 it had increased to 6 percent.
  • Between 1890 and 1940, the average work week fell by 20 hours.
  • After 1940, sick days, paid vacations, holidays and personal leave increased.
  • While the conventionally measured standard of living increased by 1.8 percent annually between 1972-1991, the increasing share of recreational expenditures imply that it increased by an average of 3.6 percent annually.

According to the new measuring system, lower income households were the primary beneficiaries of the increasing standard of living.

Source: Dora L. Costa, "American Living Standards: Evidence From Recreational Expenditures," National Bureau of Economic Research, May 1999.

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