As per Wikipedia, Per capita income (PCI) or average
income measures the average income earned per person in a given area (city,
region, country, etc.) in a specified year. It is calculated by dividing the
area's total income by its total population.
Per capita income is generally used to compare prosperity of
the society. But one of the major drawbacks is that it does not represent the
prosperity if the income distribution is lopsided. For e.g. Few people are earning
too much while many others in that area are earning such that they are not even
able to meet their minimum requirements.
I will explain with an example.
In the above screenshot, we can see income of 10 different
people in an area. We can see how varied the income distribution is. This
generally happens in capitalistic system where the owner keeps the maximum
profit and gives small amounts to employees.
Let’s say minimum requirement for an individual is 20,000 to
meet his basic needs. Now the per capita income here is 87,700. With this
statistic of per capita income, we will say that this area is very prosperous
but we can see that 40% of the people are not able to even meet their minimum requirements.
So, this picture of per capita income does not give true picture.
So, what should be the measuring criteria? I liked
purchasing capacity concept by PROUT (Progressive utilization theory). You can read more about it at - https://www.proutwomen.org/2017/01/purchasing-capacity-key-prout-economic-concept-part-two/
Above article considers purchasing capacity of 1 if a person
is able to just meet his minimum requirements. It explains when minimum requirements
criteria can be uplifted based on purchasing capacity distribution.
Let me know your views.
