Per Capita, What It Means, Calculation, How to Use It

Image shows a woman lecturing to a group of people in front of a world map. Text reads: "What does 'Per Capita' mean? Translating to 'by the head,' the term is commonly used in statistics, economics, and business to report an average per person. Tells you how a country, state, or city affects its residents. When calculating per capita divides a statistical measurement for an organization by its population. Example: GDP per capita is a country's economic output per person"

Image by Derek Abella © The Balance 2019

Per capita means per person. It is a Latin term that translates to "by the head." It's commonly used in statistics, economics, and business to report an average per person. It tells you how a country, state, or city affects its residents.

Per capita is often used to compare the economic indicators of countries with different population sizes. The most commonly measured indicators that use per capita are gross domestic product and income. 

In legal matters, per capita has a very precise definition. It means to divide an estate equally among all living beneficiaries. The other method is per stirpes. That means to divide the estate between the branches of the family, regardless of the number of people in each branch. 

How to Calculate per Capita

Per capita divides a statistical measurement for an organization by its population. The formula is:

  • Measurement / Population = Measurement per capita

So, if 1,000 apples are together owned by 10 people, we can say there are 100 apples per capita.

When measuring things like the incidence or prevalence of diseases that occur infrequently, then per capita is reported as per 100,000 people. For example:

  • Number of Heart Attacks / Population = Heart Attacks per capita
  • Heart Attacks per capita * 100,000 = Heart Attacks per 100,000

We use per 100,000 because the numbers per capita would be small and difficult compare.

What Is GDP per Capita?

GDP per capita is a country's economic output per person. GDP measures everything produced within a country's borders. It's usually reported for a quarter or a year. GDP per capita is a country's GDP divided by its population.

To compare GDP between countries, economists try to remove the effects of exchange rates between currencies. To do that, they use purchasing power parity, which estimates the U.S. dollar value of a nation's local goods and services.

U.S. GDP was $19.39 trillion in 2017. That made the United States the world's third-largest economy, after China and the European Union. It was also the world's third most populous country with 326 million people.

If you divide the U.S. GDP of $19.39 trillion by its population of 326 million, you get $59,500, which was U.S. GDP per capita for 2017.

Real GDP per Capita

Real GDP per capita removes the effects of price changes. That allows you to compare one country's GDP per capita over time. If you didn't use real GDP, you might think the country experienced growth when it really just suffered from rising prices. For 2018, the U.S. real GDP per capita was $62,795.

What Is Gross National Income per Capita? 

Gross national income per capita is GDP plus income earned by residents from foreign investments divided by the population. It includes income from dividends and interest earned overseas. The World Bank defines this as all income earned by a country's residents and businesses, no matter where the person is working or the business is located. In 2017, the U.S. GNI per capita was $60,990.

As of 2018, U.S. income per capita is $36,080, according to the U.S. Census.

U.S. income per capita is lower than GNI per capita because U.S. income per capita doesn't include business income. Instead, the U.S. Census compiles its own income data. The Census figure includes earned income, but not benefits. It includes investment income, but not capital gains from selling a home. It also counts government payments, such as Social Security, welfare, and government pensions. It does not include food stamps, Medicare/Medicaid benefits, or tax refunds. 

Why per Capita May Not Be the Best Measurement

When looking at U.S. income per person, median income will give you a clearer picture than per capita or average income can. The median is the point where half the people earn more and half earn less. It's a more useful number because it adjusts for the relatively few extremely wealthy people whose income skews the average upward. In 2018, the median income per capita was $33,706 ($2.374 less than average, or per capita, income), according to the U.S. Census.

Median income is a more accurate reflection of average Americans' actual incomes because it accounts for income inequality that per capita (or average) income can hide.

What Is Gross National Product Per Capita?

Gross national product per capita is a measurement very similar to gross national income per capita. It is no longer commonly used. The U.S. Bureau of Economic Analysis replaced it with GDP per capita in 1991. GNP measures all income earned by a country's residents and businesses. It includes their income from foreign investments. For companies, that includes products manufactured overseas. GNP doesn't count income earned in the U.S. by foreign residents or businesses. 

The Bottom Line

GDP and GNI numbers show a country’s aggregate economic growth. But it's often more important to know how individual citizens are doing economically. A country may seem to be doing well with a high or increasing GDP. But if its population has grown as well, then its total income has been spread out over more people. This makes the country poorer than one showing a lower aggregate production but supporting a much smaller population.

As such, the per capita or per person measurement becomes necessary to assess the standard of living of a nation. To accurately assess whether a nation’s people are indeed getting wealthier or poorer, per capita has proven to be a most useful computational tool.