Per capita income
Per capita income or income per person is a measure of mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross National Income) and dividing it by the total population. It does not attempt to reflect the distribution of income or wealth.
Per capita income as a measure of prosperity
Per capita income is often used as a measure of the wealthe of the population of a nation, particularly in comparison to other nations. It is usually expressed in terms of a commonly-used international currency such as the Euro or United States dollar, and is useful because it is widely known, easily calculated from readily-available GDP and population estimates and produces a straightforward statistic for comparison.
Per capita income has several weaknesses as a measurement of prosperity:
- As it is a mean value, it does not reflect income distribution. If the distribution of income within a country is skewed, a small wealthy class can increase per capita income far above that of the majority of the population. In this respect Median income is a more useful measure of prosperity than per capita income, because it is less influenced by the outliers.
- Economic activity that does not result in monetary income, such as services provided within the family, or for barter, are usually not counted. The importance of these services varies widely among different economies.
- Comparisons of per capita income over time need to take into account changes in prices. Without using measures of income adjusted for inflation, they will tend to overstate the effects of economic growth.
- International comparisons can be distorted by differences in the costs of living between countries that aren't reflected in exchange rates. Where the objective of the comparison is to look at differences in living standards between countries, using a measure of per capita income adjusted for differences in purchasing power parity more accurately reflects the differences in what people are actually able to buy with their incomes.
See also