Rent per capita

Country map per GDP per capita in 2019, according to the World Bank.

The income per capita, GDP/GDP per capita or income per capita is a macroeconomic indicator of productivity and economic development, used to deliver a vision regarding the performance of the economic and social conditions of a country, this in consideration of real growth and the labor force. It is also generally used as an indicator of social welfare. It is the relationship between GDP and the number of inhabitants of a country. To obtain it, you have to divide the GDP of a country by its population.

Income as an indicator of well-being

Relationship between life expectancy and GDP per capita in 2009. For very low-income countries there is a clear growing relationship between both variables. From average incomes, life expectancy changes little with income.

It is an indicator commonly used to estimate the economic wealth of a country. Numerous pieces of evidence show that per capita income is positively correlated with the quality of life of the inhabitants of a country. This is especially true when the income does not exceed a certain threshold; however, for higher-income countries, the correlation between quality of life and per capita income is losing. That is, in very poor countries, an increase in GDP in general implies an increase in the general well-being of the population, especially if the distribution of income is not very unequal. However, in higher-income countries there is less relationship between the indicators of health, education and general satisfaction expressed by the respondents and GDP, hence the GDP has a limited usefulness to measure the well-being of the population.

Criticism of the use as an indicator

There are various criticisms of the use of this indicator as a measure of social well-being or the quality of life of the inhabitants of a country. Some of these criticisms are:

1. It ignores income inequalities. Thus, by dividing the total GDP among its number of inhabitants, what it does is to attribute the same level of income to all, ignoring the economic differences between the inhabitants. To measure approximately the distribution of income among all individuals in a given country there are alternative economic indicators such as the Gini coefficient or the Atkinson index.
2. It does not account for negative externalities. When a country ' s natural resources are decreasing, consumed excessively fast or contaminated, there are factors that reduce social well-being that are not accounted for within GDP.
3. Not all production increases material well-being. A certain type of expenditure recorded in GDP is not intended to be consumed or to increase production possibilities, but is intended only to protect us from potential negative externalities. Such is the case of military or security costs.

There are alternative measures of National Income that somehow account for the factors included in criticisms 2 and 3, these indicators are: the sustainable economic well-being index (IBES) and the real progress index (IPR), also known as as Genuine Progress Index (GPI).

Criticism of Kuznets

The first critic was Simon Kuznets himself (1901-1985), creator of the United American system of national accounting, and inventor of GDP. Kuznets was very critical of the claim to measure welfare solely on the basis of per capita income derived from GDP. In a speech before the US Congress in 1934 he warned that:

is very difficult to deduce the well-being of a nation from its national income (per capita)

Simon Kuznets, 1934

However, their warnings were ignored and both economists and politicians continued to equate prosperity and GDP growth per capita. Thus years later in his testimony before Congress he amplified the criticism of him when he stated:

We must take into account the differences between quantity and quality of growth, between their costs and their benefits and between the short and long term. [...] The objectives of "more" growth should specify what and why

Simon Kuznets, 1962

Alternative indices to measure well-being

Relationship between the human development index (HDI) and GDP per capita. It can be noted that there is a very high correlation between HDI and GDP logarithm per capita.

There are indices or alternative measures of National Income that somehow account for factors not included in GDP and in GDP per capita.

Indices to measure income distribution

As indicated to approximately measure the uniform distribution of income among all individuals in a given country.

• Gini coefficient
• Atkinson Index

Indices to measure well-being

Some of the most suitable indicators to measure the social welfare of a country are:

• Sustainable Economic Welfare Index - (IBES) (based on ideas presented by W. Nordhaus and James Tobin in their Measure of Economic Welfarethe term was coined in 1989 by Herman Daly and John Cobb)
• Real progress index - IPR or genuine IPG progress index, this index is like IBES but with more variables
• Human Development Index - (IDH) (United Nations)
• Forham Social Health Index - (IFSS) Measures 16 indicators including infant mortality, abuse and poverty, suicide, drug use, school drop-out, unemployment, health coverage, poverty in the elderly, homicide, housing and social inequality.
• Economic welfare index - IBE. Consider the saving rate of families and the accumulation of tangible capital, such as the value of housing, which measures the feeling of future security.

Human development indices and poverty

In addition to the Human Development Index (IDH), which includes per capita income among its parameters, there are others, indirect, which are those that indicate the degree of poverty, underdevelopment or deprivation.

• Multidimensional poverty index (IPM or MPI -Multidimensional Poverty Index-), since 2010 it has supplanted human poverty rates (IPH and IPH-1/IPH-2)

• Poverty index or poverty indicators

• Human poverty index for developing countries (IPH-1, developed since 1998).
• Human poverty index for selected OECD countries (IPH-2, developed since 1998).

• Gender Human Development Index (GDI), developed since 1996
• Gender empowerment index (IPG, developed since 1996).
• Index of material deprivation or Indicator of material deprivation -Applied in the United Kingdom in 2010, which includes the calculation of poverty in the income and calculation of material deprivation; improves the proposed supplementary poverty calculation (PMS) of the United States by 2011.