Besides GDP, one of the country’s economic indicators that is often reported in the media is GDP per capita. Both GDP and GDP per capita are used as indicators of social welfare in a country. What is per capita income and what is an example? Check out the comments below:

meaning of per capita income

Per capita income is the average income of people living in a country. This indicator is used as one of the benchmarks for social welfare in a country. It has become one of the benchmarks for whether a country is classified as a developed, developing or poor country.

Reference information from world bankIn 2021, Indonesian GDP per capita will be US$12,000, four times higher than the same indicator in 1990. Broadly speaking, It could be interpreted as the rising standard of living for Indonesians over the past 32 years.

according to information B.P.S.The per capita income of Indonesians in 2021 is 62,236,440 per year (current GDP) and 40,775,880 (gdp constantBased on this data, the top 5 provinces with the highest income per capita in Indonesia are DKI Jakarta, East Kalimantan, North Kalimantan, Riau and Riau Islands. The provinces with the lowest levels of GDP per capita are East Nusa Tenggara, West Nusa Tenggara, Gorontalo, West Sulawesi and Maluku.

per capita income formula

In general, the way per capita income is calculated is relatively simple: take the national income (GDP or GNI) divided by the total population of the country. but the calculation results per capita income It varies according to the type of national income used.

Indonesian per capita GDP data is based on the World Bank, for example. If you use constant GDP, the result is $40,233 per capita, but if you use current GDP, the value changes to $61,407. The $12,000 figure above is Indonesian GDP per capita after adjusting. purchasing power parity (M.P.P.).

function to know per capita income

Although it is not the only indicator used to assess people’s welfare conditions. But the presence of GDP per capita is also important for:

  1. Mapping the lagging areaThe presence of GDP per capita is expected to help governments determine which areas have lower welfare levels and need assistance. It is known that there are 5 provinces in Indonesia with low per capita income levels.
  2. Per capita income also helps map the affordability of basic needs in the area.. Per capita income can also be used as a benchmark for affordability of basic needs. For example, the per capita income of DI Yogyakarta residents is IDR 40,000,000 per year, so of course a house price of IDR 5 billion is unaffordable for most people in the area.
  3. Indicators of the potential for opening a businessThe company certainly wants to open stores in areas with large populations and high income per capita. This means that the purchasing power of the local community is also high, so the earning potential is also high.

Country classification by per capita income

As mentioned above, GDP per capita is also an indicator used by many international economic institutions to divide countries according to their economies. United NationsCountries in the world can be categorized according to GDP per capita into four categories:

1. Developed countries (high-income countries/ developed countries)

Countries that fall into this category have a per capita GDP higher than d$12,615, such as Australia, Belgium, the United States, etc.

2. Developing countries (upper middle income countries)

Countries in this category with per capita GDP of approximately $4,086 and $12,615 include Thailand, Malaysia, Indonesia, China, etc.

3. Developing countries (low middle-income countries)

Countries in this category have GDPs per capita of about $1.036 and $4.085 respectively, for example, Bangladesh, the Philippines, Papua New Guinea, etc.

4. Poor countries (Low-income countries)

Countries in this category have GDP per capita below $1,036. Most countries in this category are Central African countries. and parts of Asia, for example, Afghanistan, Central African Republic, North Korea, Zambia, Ethiopia, etc.

per capita income limits

Per capita income can be a widely used indicator for calculating the welfare of people in an area. However, this does not mean that this indicator has no weaknesses. Here are some limitations of this indicator:

1. Does not reflect real living standards

This indicator does not include inequality factors in the calculations. For example, a village has 1,000 residents with an annual income of INR 100,000,000 and 9,000 residents with an annual income of INR 24,000,000. Therefore, The per capita income of the village is:

GDP per capita = ((1,000 x 100,000,000)+(9,000 x 24,000,000))/(1,000+9,000) = IDR 31,600,000

2. Does not describe the level of social welfare as a whole.

People’s welfare levels are not only measured by how much they earn in a year. but also measured by many things including housing conditions access to education and nursing homes, etc.

3. Does not describe the purchasing power of the community as a whole

Indonesia’s per capita income has increased four times (400%) higher than it was in 1990. However, at the same time, the prices of goods in this country in 2022 and 1990 will certainly be different. This means that the increase in per capita income does not necessarily reflect the increase in people’s purchasing power due to inflation.

4. GDP per capita is an economic comparison between countries.

Normal GDP per capita calculations are not suitable for international economic comparisons. Because every country will have a different cost of living for one reason or another. For example, the price of a movie ticket in Indonesia at the weekend is 50,000 IDR or about $3.3 USD. $3.30 cannot be used to buy a movie ticket in the US. Although the facilities are the same. Since movie tickets in this country sell for around $10 or 150,000 rupiah, so generally. The researchers will use the adjusted GDP per capita indicator. purchasing power parity.

5. Information bias

to calculate per capita income Children are included in the counting category. Rich people’s money, on the other hand, which is not used to buy anything and is merely investing or saving, does not count.

because of these weaknesses Per capita income is generally used only as an indicator of social welfare. There are even many high-income countries that do not fall into this category. developed country due to the deficiencies of other indicators such as the Human Development Index (IPM), the poverty rate and unemploymentand so on

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