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Sunday, June 30, 2013

What per capita income really is

Statistica data does not necessarily imply factual accuracy
Income measurements vary due to different calculation methods

The commonly referred to statistic “per capita income” is really a somewhat misleading statistic used to represent the general income for the entire working age population. Numerous other statistics including median income and mean income often produce considerable variance in results and change when measured in low-income neighborhoods or other demographic niche areas.


Facts are sometimes statistics, just as some statistics are facts, but not all statistics are facts. This means that representative numbers are subject to being quantitative illusions subject to being taken seriously because they were issued by a Federal Agency. In function, agencies are comprised of people and rules just like any other organization; such being the case, statistical data emerging from federal entities are subject to fallibility, bias and administrative oversight just like any other organization and despite bureaucracy that maintains the status quo.


The average income of all Americans is often higher than the average income of most Americans, and that qualifies average American income as misleading because when used as a general indicator of national economic success, it does not account for huge income differences between demographics. For example, according to the U.S. Census 2007-2011 American Comunity Survey, mean retirement income was $22,490, and per capita income was $27,915. However, mean household income was $72,555 and mean non-family income was $45,893.


The problem of per capita income begins far earlier than the data output of StatPro, SPSS or whatever statistical software used to create them. The data collection process, the selected input variables, the software design and even administrative oversight, all have bearing on what an official or public statistic really is or pretends to say.

Per capita income is the mean money income received in the past 12 months computed for every man, woman, and child in a geographic area. It is derived by dividing the total income of all people 15 years old and over in a geographic area by the total population in that area. Note -- income is not collected for people under 15 years old even though those people are included in the denominator of per capita income. This measure is rounded to the nearest whole dollar.”

In the case of per capita income as determined by the U.S. Bureau of Economic Analysis, the calculation is defined as follows:

Per capita personal income is calculated as the personal income of the residents of a given area divided by the resident population of the area. In computing per capita personal income, BEA uses the Census Bureau’s annual midyear population estimates.”

The problems with both the BEA and the Census per capita income measurements is how they assess income and the inherent generality of the statistics. Moreover, since Internal Revenue Service documents are usually private, the income data being used by these two other organizations must be arrived at another way. None of the data takes the multi-trillion dollar shadow economy in to account either.


Government data is not the only source of income information. Organizations such as the World Bank, International Monetary Fund and many private and not-for-profit research firms have the freedom to utilize different methodologies in their per capita income measurements, The result becomes a different number entirely. To illustrate, the World Bank uses a metric called GDP per capita. This is a country's gross domestic product divided by the population. In 2011, the World Bank estimated U.S. GDP per capita at $48,112, a number more similar to mean non-family income than per capita income.

When evaluating any economic or financial statistics it is important to realize these are often only representative estimates. In other words, when statistics are based on limited data sets, they are often believed, or intended to be derived from a group of people or demographic that is representative of the whole country. In the case of per capita income, the statistic is a very general number that fails to take income disparity and differential into account. Instead, the aggregate per capita income is more a measurement of macro-economic strength and conditions.

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