Anti-poverty campaigners at Oxfam have created a new technique for measuring quality of life and social justice in Britain which they claim has found major flaws in mainstream policies on jobs and economic growth.

The charity said its new Humankind Index, launched on Tuesday, was a far more accurate measure of people's wellbeing and happiness than focusing on GDP and employment rates, and had found deep-seated and significant problems which had been ignored by successive governments.

It said the index – designed by Oxfam's Scotland office using 18 measures ranging from health, transport, family life and experiences of work to access to parks – found most people put much greater weight on the quality of their lives and work than on material wealth and success.

While quality of life for most people in Scotland had improved slightly, by 1.2%, between 2007-08 and 2009-10, this was chiefly due to improvements in their health and community spirit.

The index, which is now being evaluated by UK government statisticians and Scottish government civil servants, estimated that in contrast, there had been a 43% fall in people's financial security, a 26% fall in the number of people who felt they had secure and suitable jobs and a 24% decline in those who felt they had enough to live on.

It had also detected a growing "lag" in the wellbeing and experiences of the most deprived communities compared to the average; Oxfam said that raised serious questions about the damage being done by the recession and the stress from flexible, temporary and part-time working demanded by government ministers and the modern jobs market.

Over the same two-year period, while the index overall had gone up, for the poorest it had fallen behind: they had experienced a 40% gap in the quality and safety of their local environment and streets, a 16% difference in their ability to manage financially, and a 10% gap in their health.

Judith Robertson, the head of Oxfam Scotland, said the index "goes beyond simplistic economic measures like GDP. It reminds us that the economy should serve its people, not the other way around.

"We're often told that we live in a materialistic world, but Scots are not saying they want to be millionaires. They want a stable, secure income that allows them to care for their families and take part in society. Many people don't have that and they told us that Scotland's economy isn't working for them."

In a major collaboration with the New Economics Foundation, the Fraser of Allander economics thinktank at Strathclyde university, the pollsters YouGov and the Scottish TUC, the Humankind Index was developed by Oxfam Scotland after more than 3,000 people were interviewed using conventional opinion polling; focus groups and workshops which included groups such as African refugees, and those on low incomes; setting up street stalls and online questionnaires.

The new methodology, which weighted each type of measure based on the importance that the public gave them and then applied them to official data, is now being studied by experts at the Office for National Statistics in Newport, who are working on David Cameron's "happiness index" to measure wellbeing.

It is also being considered by senior Oxfam executives for use across the UK and as part of the charity's work on sustainable living and on new measures of inequality, as well as by Oxfam offices overseas in "middle economy" countries such as Brazil.

Dr Katherine Trebeck, the Oxfam UK poverty project adviser who oversaw the Humankind Index, said the new method was far more sophisticated and far-reaching than Cameron's "happiness agenda", which was influenced in turn by the work of the London School of Economics professor Lord Layard, author of Happiness: Lessons from a New Science.

"This isn't about 'happiness'. We're not asking people 'are they happy,'" Trebeck said. "It's about collective wellbeing; it's about what communities need and is more asset-focused, rather than saying to someone 'are you happy?'.

"The Indian economist Amartya Sen said you can bear adversity cheerfully, but that doesn't mean you're not experiencing adversity. This is about inclusion and social justice."

Stephen Boyd, assistant director of the Scottish TUC, said the index had strengthened his belief that the current dominance of part-time, temporary and casual work was having a "hugely detrimental effect" on people's quality of life, by confirming that many people in work felt insecure and dissatisfied.

Scottish government figures showed more than 500,000 people, nearly a fifth of the total workforce, were "underemployed" and in unstable jobs. "There are huge issues with the quality of life and work for our citizens," he said.

"We've been told for 30 years that flexible labour markets are the absolute lynchpin of economic success. The Humankind Index suggests that we're not as successful as perhaps we've been told, compared to other nations."

Gehan MacLeod, the founder of GalGael, an alternative employment charity in Govan, Glasgow, was closely involved in the project and said the index offered policymakers the chance to finally address the root causes of drug addiction, mental illness and repeat offending experienced by her charity's clients.

"It gives us different anchor points to judge our success or otherwise as a society: we need large-scale structural change," she said.

"It's a framework by which that shift in values can be taken to the policy and decision-making level; to inform decisions and policies which should be more appropriate and more relevant, making more of a difference to the experience of our participants."