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What is Per Capita?

2017-06-10T06:32:28+00:00

The term 'Per Capita' is included in the Accounting edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Per Capita refers to a Latin language Roman phrase. It comes from per which means by or by means of, and capita which means head. Thus the full phrase signifies “for each head” or “by heads.” This translates to per person or per individual. The popular phrase finds use in a great range of both statistical research and social sciences deployments. This includes economic indicators, government statistics, and studies of build environments.

The Per Capita is typically utilized by the study of statistics. Wills also utilize it to provide the context that all specified beneficiaries must obtain (either through bequest or devise) equal shares of the deceased individual’s estate. The alternative arrangement is called a per stirpes division. In such an arrangement, every branch of the family inheriting receives a comparable share from the estate.

Beyond these meanings of the phrase, Per Capita finds use in any type of population description, such as with GDP or GNP. Despite this, it most commonly finds its place in situations that have to do with economic reporting and data releases. The reasons economists report using per capita is so it can be compared against other countries and jurisdictions. Coming up with this formula is easy. All one has to do is to divide the whole number which is referenced by the total individuals involved.

It is always helpful to look at a tangible real world example to better understand a difficult concept. Consider the United States Per Capita GDP. In the year 2011, the population of America was 313.4 million individuals. At the same time, the country’s Gross Domestic Product proved to be $15.09 trillion. This means that the national average income per person amounted to $15.09 trillion divided by 313.4 million, or around $48,000.

Economists enjoy deploying this type of statistic whenever they are comparing, contrasting, or discussing a nation and its purchasing power of the residents. Their three favorite uses of the measurement come in the form of per capita gross national income (GNI), Gross National Product (GNP), and Gross Domestic Product (GDP). The two metrics of GNP and GDP each sum up the national economic value of all services and good produced by market value. Their main difference lies in defining national economies differently. It is the GNP that considers the citizens living abroad and their economic activities along with direct foreign investment and economic production of all overseas operations for companies domiciled in the home country. GDP only considers the economic activities which transpire inside of a country’s own national boundaries. The third metric GNI is much like GNP.

The problem with utilizing such Per Capita measurements as GNP, GDP, or GNI to describe income per individual in nations has to do with the vast inclusiveness of the metrics. They are in fact describing the average income for all citizens and residents of the given jurisdiction. The problem is that they are counting all individuals including retirees, babies, and children in the measurement, even though these people do not technically work or earn income. There are also some statistical outliers that the metrics do not take into account.

This is why more economists find median income statistics to be more useful than the GNP, GDP, or GNI figures. Median income actually describes the average income which those who reside in a given nation will probably earn. It is the exact middle income for the entire list of income earners. This means that precisely half of the individuals looked at will earn less than this figure, while the other half will earn more. In the calculation of this median income, the United States Census Bureau never considers any children who are less than 15 years old. Median income measurements can also be done per capita, per family, and per household.

The term 'Per Capita' is included in the Accounting edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.