Income per head is calculated by dividing the total income of an area (ie Greece or Portugal) by its total population, therefore meaning that it is the average income. Standards of living can be defined as the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area. When discussing the idea of standard of living, it is important to recognise that income per head is not the only indicator, and there are several others such as the human development index (HDI) and the misery index (MI). National income data ignores economic welfare brought about by ‘informal’ economic activity – ie economic activity that’s not recorded by government statistics (which is a large chunk of some developing countries), therefore looking at just the income per capita may give a narrow-minded view. The idea of a non-representative income per head through inequality can be displayed on the Lorenz Curve below.

The green line in this diagram shows the Lorenz curve for Netherlands and Ireland. This shows that there is great inequality amongst the population, as the bent curve means a greater share of the country’s overall income goes to a relatively small number of people, hence showing that just the GNI/head does not give a good indication as the average will be significantly higher than what some people’s actual incomes are.

An advantage however of using income per head as an indicator of standard of living is the idea of PPP (purchasing power parity). If income per head is higher in Netherlands and Ireland, then they are more likely to have a higher standard of living. This means that the same amount of money will buy more in a less developed country than in a developed one. As the money supply is higher in Netherlands and Ireland, they can therefore afford more goods (luxuries) and so have a higher standard of living. Another measure of living standards is that of GDP, average GDP per capita in particular. Netherlands and Ireland have a higher GDP/head of around 50,000 USD. Whereas Greece and Portugal’s is around 21,000 USD. This means that in the countries with a higher GDP there are more goods and services available to consumers and so consumers are in a better position to buy them. However as a tool for measuring living standards GDP/capita has it’s shortcomings, for example the distribution of wealth and unpaid work. Using GDP as a measure of living standards depends on how it is achieved. If a high amount of GDP in Netherlands, for example, was achieved through creating several factories, which emit tons of pollution (negative externalities) then technically living standards may not be as great as they are perceived to be.

Furthermore, official data on GDP understates the growth of real national income per capita over time due to the shadow economy and the value of unpaid work by volunteers and people caring for their family. The "shadow economy" includes illegal activities such as drug production and distribution, prostitution, theft, fraud and concealed legal activities such as tax evasion on otherwise-legitimate business activities such as un-reported self-employment income. As a consequence some statistics may be lower than they actually are.

Having evaluated the view that living standards are higher in Netherlands and Ireland in accordance with income per head, it is possible to see that this method has several shortcomings, as summarised above. An alternative to using income per head is that of the human development index (HDI). A tool developed by the United Nations to measure and rank countries' levels of social and economic development based on four criteria: Life expectancy at birth, mean years of schooling, expected years of schooling and gross national income per capita. The HDI makes it possible to track changes in development levels over time and to compare development levels in different countries, something in which looking at income per head alone doesn’t allow us to do.