Gross Domestic Product (GDP) per person, is often used as a measure of a country’s standard of living, with higher GDP per person indicating higher living standards. GDP per person, however, was not designed as a measure of individual or national well-being.
Many economists argue that growth in median household incomes provides a better measure of how people’s well-being has changed over time. The median household income is the income of what would be the middle household, if all households in the UK were sorted in a list from poorest to richest. As it represents the middle of the income distribution, the median household income provides a good indication of the standard of living of the “typical” household in terms of income.
Median equivalised disposable household income more than doubled between 1977 and 2011/12, after accounting for inflation and changes in household composition. In 1977, the median was the equivalent of £11,200 in 2011/12 prices. In 2011/12, median household income was £23,200, having grown at an average rate of 2.2% per year over the intervening period. Over this same period, mean household income increased more quickly than the median measure, growing at an annual rate of 2.4% from £12,600 to £28,200.
Growth of median (and mean) household income and Gross Domestic Product per person
Growth in median household income closely mirrors growth in GDP per person for much of this time, rising during periods of economic growth and falling during or immediately after recessions. However, between 2004/05 and the start of the recent economic downturn, median income grew more slowly than GDP per head.
Since the start of the economic downturn, median household income and GDP per person have both fallen. However, the fall in UK median household income has been smaller than the fall in GDP per person over the same period. Between 2007/08 and 2011/12, median income fell from £24,100 to £23,200, a percentage drop of 3.8%, while GDP per person fell by 6.5%.
The impact of the economic downturn on median household income was delayed relative to the fall in GDP per person. Between 2007/08 and 2009/10, GDP per person fell by 7.7%, whilst median disposable income changed little. However, between 2009/10 and 2011/12, GDP per person grew by 1.3%, whilst median household income decreased by 4.1%.
All figures given in this summary are calculated in constant 2011/12 prices in order to account for the effect of inflation over the period.
These statistics were produced by the Household Income and Expenditure Analysis team. Further enquiries should be directed to James Lewis (firstname.lastname@example.org) or Richard Tonkin (email@example.com). More detailed analysis of the changing incomes of households in the middle of the income distribution, including the effects of taxes and benefits is available in the article Middle Income Households, 1977-2011/12 .