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Analysis

  • Fall in national income → Fall in household income → Fall in disposable income → Fall in ability to consume → Fall in standard of living
  • However
    • Non marketed goods may rise
    • Undeclared goods and services may rise
    • Non material rise in standard of living
      • Income equity → Emotional fulfilment
      • Negative externalities eliminated (environment)
      • Fall in national income → Fall in working hours → Rise in leisure time

 

Introduction

  • The standard of living refers to the material and non material welfare of the people
  • The effect of a decrease in national income in Singapore on the standard of living can be discussed with reference to the
    • Amount of goods and services available or consumption
    • Emotional wellbeing of workers (Non material)
    • Amount of non marketed goods and services
    • Amount of undeclared goods and services
    • GINI coefficient (Non material)
    • Negative externalities (Non material)
    • Leisure time (Non material)

 

Thesis: Fall in national income in Singapore → Fall in standard of living

  • Since national income = National output, fall in national income → Fall in amount of goos and services available for consumption → Fall in material standard of living + Fall in non material standard of living
  • Fall in national income → Unplanned accumulation of inventories → Firms reduce output → Firms reduce factor inputs → Rise in unemployment → Fall in household income → Fall in disposable income → Fall in ability to consume → Fall in material standard of living
  • Fall in household income → Fall in mental health of workers → Fall in non material standard of living

 

Anti-thesis (Direct argument): A fall in national income in Singapore may not lead to a fall in the standard of living as it may not lead to a fall in the amount of goods and services available for consumption

  • Point: Amount of goods and services available for consumption in Singapore may not fall as the amount of non marketed goods and services may rise
    • Value of non marketed goods and services is not included in national income (e.g. pie baked by housewife not included but pie baked by baker included)
    • Unemployment in Singapore rises → More people have time to engage in household production → Rise in no marketed goods and services
  • Point: The amount of foods and services available for consumption in Singapore may not fall because the amount of undeclared goods and services in the background economy may rise
    • Value of undeclared goods and services in the underground economy is not included in national income
    • Undeclared as they may be illegal (e.g. drugs and prostitution) or for the purpose of tax evasion
    • Unemployment rises → People compelled to engage in production in the underground economy → Rise in undeclared goods and services

 

Anti-thesis (Even if): A fall in the amount of goods and services in Singapore may decrease, but the standard of living may not fall

  • Point: Income equity → Emotional fulfilment (Non material rise in standard of living)
    • Fall in national income → Larger wage cuts in high income individuals than low income individuals due to their higher wages → Improves income equity → Low income workers may feel relatively better off → Rise in non material standard of living
  • Point: Fall in negative externalities → Rise in non material standard of living
    • Less negative externalities such as carbon emissions → Fresher/Better quality air
  • Point: Fall in national income → Shorter working hours → More leisure time → Rise in non material standard of living

 

Conclusion

  • Fall in national income → Likely fall in standard of living
  • Although the amount of non marketed and undeclared goods and services in Singapore will rise, it is unlikely to offset the fall in national income
  • The fall in negative externalities unlikely to be significant due to the already clean environment
  • Standard of living should not be merely dictated by the income levels
  • To have a better gauge of the standard of living in Singapore → Use Measurable Economic Welfare (MEW)
  • National income can be adjusted to obtain the MEW by adding factors which increase the standard of living such as increased leisure hours and subtracting factors which reduce the standard of living such as negative externalities → More accurate reflection of standard of living

 

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