What is per capita? Definition and meaning
Definition and meaning of per capita is a common term used in economics, human geography and statistics, it means per person or per head of the population. The Latin word Capita means ‘head’, while ‘Per’ is Latin for ‘by’ or ‘by means of’. In the world of economics it is common to say ‘per capita’ instead of ‘per person’.
The dictionary Merriam-Webster says that records of the term used in the English language date back to 17th century England.
While commonly used in relation to economic or statistical data or reporting, the term can be found in virtually any type of description that includes populations.
Per capita simply means ‘per person’. The term is commonly used in economics, statistics and human geography.
What is income per capita?
The economic term income per capita or per capita income measures the average income per person in a country, region or city in a particular year. It is calculated by dividing total income by the population. Average GDP per capita has the same meaning.
The term does not tell you what people’s salaries are, because in this type of calculation, the nation’s total income is divided by the whole population – that is every single man, woman and child.
As a significant proportion of a population is either retired, too young to work, in full-time education, unemployed, or occupied as full-time unpaid caregivers or homemakers, income per head is considerably less than the average salary in a country.
Imagine a country with 10,000,000 people and a GDP of $200,000,000,000. Sixty percent of that country’s population is economically active – actively earning money. There are two calculations we can make regarding their income:
1. Income Per Capita:
$200,000,000,000 (GDP) ÷ 10,000,000 (population) = $20,000.
2. Average Annual Income of a working person:
$200,000,000,000 ÷ 6,000,000 (active population) = $33,333.
The second calculation can be slightly misleading, because in an economy there are full-time and part-time employees. If the income of the 3% richest people in a country represents 40% of GDP, the income per capita number is not a good representation of the standard of living of the general population.
Comparison between two types of inheritance. On the left, each branch gets one third of the deceased estate. On the right, A’s only surviving descendant, C, gets one third. The remaining two-thirds are divided among the offspring in the next generation. (Data: Wikipedia)
According to BusinessDictionary.com, per capita income is:
“Total national income (GDP) divided by total population. It is not the average income (because it includes children and non-working population) but serves as an indicator of a country’s living standards.”
Per capita vs. per stirpes
There are two common methods to divide an estate after somebody dies. When it is per capita, it means that the estate is divided on a per head basis – everybody receives an equal share, regardless how close or distant their relationship to the deceased is.
Per stirpes means ‘division by branch’ – the estate is divided equally between each branch of the family.
For example, imagine Ryan has two sons, Walter and Eric. Walter’s sons are Ted and Dylan. Eric’s sons are Maurice and Humphrey. If Walter dies and then Ryan dies, the estate is per capita divided equally between Ted, Dylan and Eric, each one getting a third – Maurice and Humphrey are excluded because Eric, their father, is still alive.
In this same example, if the division is per stirpes, then Walter’s and Eric’s branches get half each. Eric lives and gets his half, whereas on this model Ted and Dylan take a per capita division of the total amount allocated to the stirpes, that is, one quarter of the estate.
Per capita cost
The total number of ‘heads’ or people are added up and the bill – the total cost – is divided among these people.
Imagine five people, Tom, Dick, Harry, Jane and Mary go out for a meal. The bill comes to $115. The per capita cost of that meal is:
115 (bill) ÷ 5 (people) = 23.
So, if they decided to ‘go Dutch’ (split the bill five ways), they will have to pay $23 each.
The term can also be used for expenditure. For example, if the government spends $100 million in one year on road maintenance, and the country’s population is 10 million, expenditure per capita on road maintenance is:
100,000,000 (expenditure on roads) ÷ 10,000,000 (population) = $10.
Video – GDP and GDP Per Capita
In this *A Level video, Geoff Riley explains what the difference is between GDP (Gross Domestic Product) and GDP per capita.
* ‘A Levels’ are British exams taken at the end of a child’s secondary education (age: 18). The equivalent in the USA and Europe are 12th Grade Senior Placement exams and the (International) Baccalaureate respectively.