Better Life Index ranks UK above average on jobs, earnings and housing – but below average on education, skills and equality

The UK has come in ahead of Germany, the United States and Japan as the best place to live and work, according to the Organisation for Economic Co-operation and Development, although inequality has risen faster in Britain than in other countries since the outbreak of the financial crisis.

The Paris-based thinktank has measured wellbeing in 34 industrialised nations, weighing up factors including incomes, education, housing and security.

It says the UK ranks above the OECD country average on measures such as environmental quality, personal security, jobs and earnings and housing. It is close to average for work-life balance, but below in education and skills.

Nonetheless, that performance puts the UK alongside Switzerland, Australia, Nordic European countries, Canada and New Zealand in a clutch of highest-performing countries on the OECD's Better Life Index.

The US, Ireland, Germany and France are in the group below, rated as average on the thinktank's "traffic light" system for how countries perform on various elements. Turkey, Brazil, Mexico, Estonia, Hungary, Greece and Chile are among the countries with a relatively low performance.

Overall, the survey paints a picture of substantial pain caused by the financial crisis.

"This report is a wake-up call to us all," said the OECD secretary general, Angel Gurría. "It is a reminder that the central purpose of economic policies is to improve people's lives. We need to rethink how to place people's needs at the heart of policy-making."

The average British household was only modestly affected by the crisis, said the OECD, but many people were blighted by higher unemployment, involuntary part-time work and poverty.

"Life satisfaction and confidence in institutions declined substantially in countries severely hit by the crisis, while people reported soaring stress levels," the How's Life 2013 report says. "However, there was little or no change in health outcomes for the population at large."

There were other positive spots for the UK, ahead of its European peers. Between 2007 and 2011, household disposable income increased by about 1%; it dropped by 2% in the eurozone.

However, income inequality remains a significant counterpoint to the UK's reputation as a fair place to live and work. The OECD said that income inequality increased by more than average in the UK between 2007 and 2011.

It indicated that the UK also still had work to do in closing the gender gap: British women are still less likely than men to have a paid job or be elected to parliament and more likely to spend many hours performing household tasks.

Its analysis of the financial crisis suggested new forms of solidarity and engagement emerged in the countries that were hardest hit.

This trend was less clearcut in the UK, however. The percentage of people reporting having helped someone decreased by 3 percentage points while the share of people reporting having volunteered their time increased by 3 percentage points between 2007 and 2011.

The UK also lags behind on education and job prospects. On average, the employment gap between those in OECD countries with tertiary education and those with below upper secondary education had remained stable since 2000. But in the UK, the gap had widened "substantially".

Some eurozone countries were hit badly by a deterioration of well-being as a result of the financial crisis. Between 2007 and 2012, reported average life satisfaction declined by more than 20% in Greece, 12% in Spain, and 10% in Italy. In the UK, the percentage of British people very satisfied with their lives increased from 63% to 64% over the same period.

The thinktank's research into Greece found the average Greek household had been severely affectedby the crisis, particularly when it came to household income, jobs, life satisfaction and civic engagement.

From 2007 to 2011, Greece suffered the biggest drop in real household disposable income of all countries while income inequality increased rose by 2%, well above the OECD average of 1.2%.

Over the same period, the percentage of Greek people declaring being very satisfied with their lives fell from 59% to 34%, the lowest share in the OECD area.

The proportion of very satisfied Americans was 67% in 2011, but that marked a big decline from before the crisis when it was 78%. One of the biggest pressures on Americans was deteriorating labour markets. As budgets became increasingly strained, about 20% of US households moved in with other households, the OECD said.

The report underlined the dwindling trust in governments and democracy. In the 34 OECD countries, less than half of those surveyed said they trusted their governments – the lowest level recorded since 2006. In the UK, however, trust in ruling politicians has increased. According to the OECD, the percentage of British people trusting the government increased from 36% to 47% between 2007 and 2011.