What Is Per Capita Income (PCI)?
Per Capita Income (PCI) is the mean income received per individual in a given area, e.g., a nation, state, or city, over a specified period (usually one year). It is utilised to ascertain the economic welfare of an individual population and is typically stated as GDP per capita.
Formula For Per Capita Income
Per Capita Income = Total Income of the Population (or GDP)/Total Population
Where,
- Total Income/GDP: This is the sum of the earnings of a region or country, such as wages, profits of businesses, and investments.
- Total Population: The population of people residing in that region or country.
Advantages Of Per Capita Income (PCI)
- PCI is calculated based on fundamental economic figures (total income and population), a simple variable to understand.
- It is helpful for economic comparisons, facilitating comparisons across various countries, regions, or states to determine economic well-being.
- A higher PCI indicates a higher standard of living since it indicates the average income available to people.
- Governments and policymakers utilise PCI to formulate economic policies, allocate resources, and undertake development programs.
- One can measure a nation's economic growth and development by examining PCI trends over time.
- Institutions such as the World Bank and IMF utilise PCI to categorise nations into income groups (e.g., low-income, middle-income, high-income).
- PCI can be combined with other indicators (e.g., the Human Development Index and the Gini coefficient) to gain further insights into economic welfare.
Limitations Of Per Capita Income
- Income Inequality: It does not consider income distribution. Higher PCI may mask inequalities between the rich and poor.
- Non-Monetary Factors Neglected: It does not consider healthcare, education, or well-being variables.
- Inflation Effect: Money's purchasing power changes from year to year, so comparisons between years are difficult.
- Non-Market Transactions: Unpaid labour (e.g., domestic work) and informal economy are not included.
- Currency Fluctuations: Cross-country comparisons are misleading due to exchange rate differences.
- Environmental Costs: It doesn't consider environmental degradation and sustainability.
Key Takeaways
Per Capita Income (PCI) quantifies the mean income per individual in an area. It is utilised to measure economic wealth, track progress, and contrast economies. Though useful for policy development and benchmarking, PCI is hampered by not measuring income inequality and quality of life factors.
