What is Per Capita Income and How to Calculate Per Capita Income

When we watch a news program on television or read a newspaper, most of us will surely come across the term income per capita. The term per capita income is generally used to discuss the economic conditions experienced by a country.

The general definition of per capita income or KDP is an indicator of welfare and also the level of prosperity in a country because its value is obtained from the average income of the people in that country.

The average income of this population can also be used as an overview to get the value of Gross Domestic Product or GDP per capita. In the world of economics, GDP is a market value of all goods and services applied to a country in a certain period of time.

Therefore, national income and per capita are very closely related between the two. Here we provide complete information about per capita income especially for you.

Definition of Per capita Income

The national income in which it is divided by the total population is called per capita income. So, per capita income is the average income of all residents in a country.

According to the Big Indonesian Dictionary or KBBI, per capita income is national income divided by the total population.

While the understanding of per capita income in general is a parameter related to the level of welfare and prosperity in a country, because its value is obtained from the average income of the people residing in that country.

The word capita itself is taken from Latin which means per head. With this calculation, we can find out the level of welfare of the average population in a country.

The Importance of Understanding Per capita Income

After we understand the meaning of per capita income, then we must also understand how important this understanding is.

KDP plays an important role as an economic indicator, especially in terms of welfare and state development. Thus, making it an important tool in the world of economics.

We will be able to see a projection of the average income generated by the average population in a country by calculating per capita income. This will certainly facilitate the planning process, especially in the economic and development fields to make a country progress.

In addition, if a country has a relatively high KDP rate, then that country will be seen as a prosperous country by other countries around the world.

This will certainly increase the pride of the people who are in it. With this pride, happiness will also increase and have a good impact on the level of community welfare.

Why Does Per capita Income Need to be Calculated?

In order to be said to be a developed and prosperous country, the government needs an overview of the economic conditions that occur in the country. This is necessary so that every action and policy that is made can be in accordance with the conditions and economic needs of the residents.

That is why KDP in a country must be calculated correctly. Without knowing the exact number, the government will have difficulty knowing the benchmarks of economic conditions in a country.

Now, to be able to solve this problem, an innovation will be born that has the aim of improving the country’s economy. Simply put, per capita income is one of the important components in the development of a country’s economy.

How to Calculate KDP?

KDP in a country can be calculated in two ways. The first is based on the prevailing price or commonly referred to as nominal PPK. Second, it is calculated based on constant prices or fixed prices taken as the reference year, or referred to as real GDP.

That means per capita income can be obtained by dividing national income by the number of people living in a country. The national income is the Gross National Product or GNP.

GNP is very different from GDP, because the calculation of GNP will include income figures from foreign production factors. Meanwhile, GDP only calculates the entire value of production without calculating whether the product is made without domestic production factors or not.

So, GNP is the value of goods or services produced by the community in the last one year period.

Example of PPK Calculation

After we know how to calculate per capita income, then let’s know the calculation process.

• Calculation of Nominal Per capita Income

This formula will involve GNI based on prices that are currently in effect.

So if the GNI figure in Zimbabwe in 2019 is 1,300,567,000 with a total population of 262 million in the same year, then the calculation formula is as KDP = GNI: Total Population. So, the KDP value in Zimbabwe is 1.300.567.000 : 262.000.000 = 0.0049639961832061 or 4,963.996.

• Calculation of Real Per capita Income

If in Zimbabwe the GNI in 2010 was 400,000,000,000, and the GNI figure in 2019 was 1,300,567,000 with a total population of 262 million, then based on fixed prices, the KDP formula is KDP = constant GNI: Total Population . So, it can be seen that the value of GDP in Zimbabwe is PPK = 400,000,000,000: 262,000,000 = 0.0015267175572519 or 1,526,717

Based on these calculations, we can know that the nominal income in Zimbabwe is 4,963,996 with a real income value of 1,526,717. From these data, we can conclude that the nominal KDP in Zimbabwe is three times larger than the real KDP.

So. What about Per capita Income in Indonesia?

When compared to other major countries around the world, our country’s KDP is still relatively low. The per capita income of the Indonesian people is still far behind that of neighboring countries, namely Singapore, Malaysia, and even Brunei Darussalam.

Singapore is a country that has the highest KDP value in all Asian countries.

Quoted from the official website of Indonesia-investment.com, our country’s GDP per capita income has in fact continued to decline over the past decade. However, the level of accuracy of GDP per capita is still questionable.

So, is GDP per capita a proper measurement tool for Indonesia itself? Because basically, the Indonesian people have high characteristics in terms of the income distribution.

This is consistent with the fact that the wealth value of the 43,000 richest people in Indonesia, or which only represents 0.02% of the total population of Indonesia, is almost equivalent to 25% of our country’s GDP.

Meanwhile, the wealth of the 40 richest people in Indonesia alone is equal to 10.3% of GDP, which is the same amount as the combined assets of the 60 million poorest people in Indonesia.

Therefore, the calculation of KDP in Indonesia actually still needs to be investigated more deeply about its accuracy value based on the composition of the income distribution of the Indonesian people.

So, the big question is, which group are we in today?