Income Per Capita, With Calculations, Statistics, and Trends
Four Ways to Measure Income per Person
Income per capita is a measure of the income earned per person in an area. It estimates the earning power of an individual. It's also used to describe the standard of living in a city, state, or country.
The average income per capita is the total income for the area divided by the number of people. But if you have a few extremely wealthy people, they will raise the average. That makes it seem like people have it better than they really do. The average income per capita can be misleading.
For that reason, most economists use median income per capita. The median income per capita is the point where half the people earn more and half earn less. It adjusts for the few extremely wealthy people.
Current U.S. Statistics and Trends
The 2017 nominal median income per capita was $31,786. Because there are quite a few extremely wealthy individuals in America, the mean is much higher. In 2017, the mean income per capita was $48,150. The Census Bureau reports it in the Current Population Survey, Table PINC-01.
How U.S. Per Capita Income Is Measured
The U.S. Census surveys per capita income every 10 years. It provides a revised estimate every September. The Census calculates it by taking the total income for the previous year for everyone 15 years and older. It then provides the median average of that data. The median is the point where 50 percent of all individuals are above, and 50 percent are below.
What does the Census include? First, earned income, including wages, salaries, and any self-employment income. It does not include employer health care contributions, borrowed money, gifts or inheritance, insurance payments, and money received from relatives living in the same house.
Second, the Census includes investment income including interest, dividends, rentals, royalties, and income from estates and trusts. Capital gains and money received for selling your home are not included.
Third, it includes government transfer payments. That includes Social Security or Railroad Retirement, Supplemental Security Income, public assistance or welfare, and retirement, survivor or disability pensions. It does not include food stamps, public housing subsidies or medical care. It also doesn't count tax refunds.
Three Other Income Measurements
There are three other widely-used measurements of income. Average household income is the most common in the United States. It tells you the income per household, which contains 2.2 people on average. That's why it's higher than income per capita.
GDP per capita is another measure of income. It takes the total gross domestic product of a country and divides it by the number of people. It's equal to the income earned by all residents and businesses in a country. It doesn't matter if they are citizens or foreigners, as long as they are within the geographic boundaries. It doesn't include income they earned from foreign investments. For example, if a company exports and sells products overseas, GDP doesn't include that income. To compare GDP per capita across years, you need to remove the effects of inflation.
That gives you real GDP per capita.
Gross national product measures all the income earned by a country's citizens and businesses, regardless of where they made it. For example, if a company exports and sells products overseas, it does include that income. It doesn't count any income earned in the United States by foreign residents or businesses. It excludes products manufactured in the United States by overseas companies. In 1993, the World Bank replaced GNP with Gross National Income. It provides GNI per capita for each country.
Median per capita income is the highest in U.S. history. It's almost 15 times greater than in 1967 when the Census first measured per capita income. At that time, the median income was $2,464 per person.
But that doesn't take into account inflation. In 1967, the value of the dollar was higher than the dollar's value today. That $2,464 could buy the same as $18,261 could today. In other words, per capita buying power has almost doubled.
Even though the U.S. per capita earning power has improved since 1967, it hasn't been a steady increase. It declines during recessions and bounces up when good times return. Since 1967, earning power fell five times: during the 1974 recession, the 1981 recession, the 1991 recession, the 2001 recession, and the 2008 recession.
That most recent recession was the worst. In 2006, a person's buying power was $32,117. That fell to $29,923 by 2010. It didn't regain the 2006 level until 2015 when it hit $32,751.
Why did it take so long for earning power to improve? During the Great Recession, unemployment meant too many people couldn't find work to get the wages. That didn't turn around until 2015 when earning power returned to 2006 levels.
Long-term, there are three major factors at work. First, wage pressure from low-paid countries China and India put downward pressure on wages around the world. Global companies outsource jobs to these countries, which allows them to pay U.S. workers less. The result? Greater income inequality. Those whose jobs can be outsourced receive low wages. Those at the top, like the CEOs, high-level managers, and owners of the companies, are relatively immune to wage compression.
Another cause of low per capita income is technology. The increasing use of robots and computers has replaced many workers in manufacturing and even office jobs. Meanwhile, those with the skills to manage the equipment are in high demand and earn more income.
The third cause is the rising cost of education. According to the College Board, one year of a state school is $20,090 for state residents and $34,220 for out of state students. Among Americans aged 25-34, only 44 percent have a college-level education. It's better in 11 other countries. Korea tops the list with 66 percent of its young people having a college education. Fewer than 30 percent of American adults have more education than their parents. As a result, economic mobility has worsened.