Per Capita, What It Means, Calculation, How to Use It
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.
In statistics, it's 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.
Calculation and Use
Per capita divides a statistical measurement for an organization by its population. The formula is:
Measurement / Population = Measurement per Capita.
If the measurement is small, like the incidence of diseases, then per capita is reported as per 100,000 people. For example:
# of Heart Attacks / Population = Heart Attacks per Capita
Heart Attacks per Capita * 100,000 = Heart Attacks per 100,000.
GDP per capita is a country's economic output per person. GDP measures everything produced within a country's borders. It's given for a quarter or a year. GDP per capita is a country's GDP divided by its population.
To compare GDP between countries, you must remove the effects of exchange rates. For that, you need to use purchasing power parity. Fortunately, the CIA World Factbook does this for you. 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.
When you divide its GDP by its population, you get $59,500. That's its GDP per capita. The U.S. GDP per capita rank fell to 19th. Many countries with smaller populations, like Ireland, Switzerland, and Qatar, had a healthy GDP but fewer people.
Real GDP per capita removes the effects of price changes. That allows you to compare one country's GDP per capita over time. It's better to use real GDP. It removes the effects of inflation from one year to the next. 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 $57,170.
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 $60,000.
It is lower than GNI per capita because it doesn't include business income. Instead, the U.S. Census compiles its own sources. It 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.
When looking at U.S. average income per person, you should really use the median income. That's the point where half the people earn more and half earn less. It's more useful because it adjusts for the relatively few extremely wealthy people. The median income per capita was $31,786, according to Table PINC-01 of the U.S. Census. It's a more accurate reflection of average income in America because it accounts for income inequality.
Gross national product per capita was a measurement very similar to gross national income per capita. It is no longer commonly used. The World Bank replaced it with GNI per capita. The U.S. Bureau of Economic Analysis replaced it with GDP per capita in 1991. GNP measured all income earned by a country's residents and businesses. It included their income from foreign investments. For companies, that included products manufactured overseas. GNP didn't count income earned in the United States by foreign residents or businesses.
That's how it differed from GDP.
The Bottom Line
GDP and GNI numbers show a country’s aggregate economic growth. But it's often more important to know how it's affected the individual citizen, on average. 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 individuals. 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 median 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.