Per capita income

Per capita income

Per capita income means how much each individual receives, in monetary terms, of the yearly income generated in the country. This is what each citizen is to receive if the yearly national income is divided equally among everyone. Per capita income is usually reported in units of currency per year. When comparing nations per capita income reflects gross national product per capita income, but it is also used to compare municipalities within nations. When determining the per capita income of a community, the total personal income is divided by the population.

Per capita income as a measure of wealth

Per capita income is often used as a measure of the wealth 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 and produces a straightforward statistic for comparison. It is the average income a person in the country is earning.

Particularly when comparing countries with substantially different levels of wealth, however, it has several weaknesses as a measurement.

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 will vary widely between different economies, both between countries and among different groups within a country. Per capita income gives no indication of the distribution of that income within the country, so a small wealthy class can increase the measured per-capita income far above that of the majority of the population. As for the per capita income of the majority of the population, using the median income or Amartya Sen's welfare function is the more appropriate approach.

Differing currency exchange rates between countries mean that a given amount of money (for example, one US dollar) has differing values in different places.

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