Does per capital income give an accurate idea of ​​the improvement in the standard of living?

Does per capital income give an accurate idea of ​​the improvement in the standard of living?

In the modern world, income is closely related to the quality of life. There is a positive relationship between high income and the standard of living. The term ‘per capita income’ used to get this idea in the case of the overall population is fairly well-known. Basically, per capita income refers to the average annual income of a person in a country. In English, it is called Per Capita Income. Per capita income is calculated by dividing the gross national income of a country by the total population of that country.

Per capita income is an indicator of the economy. It is also considered an indicator of development. However, it is wrong to think that the standard of living has increased exclusively through per capita income.

So, let’s try to understand the matter with the help of an example. Let’s say, there is a fictional country ‘Fortree’. A total of 1,000 people live in that country (each of them works, and their income comes from there). 700 of them are poor, of whom 300 are extremely poor (extremely poor). 250 middle class, of whom 100 are upper middle class. And the remaining 50 are upper class. In a hypothetical fiscal year, the total national income of that country is 50,00,000 tri (here ‘tri’ is used in the currency of this country). Then the per capita income of that country will be 5,000 tri (50,00,000 tri / 1,000 people).

Now we will calculate the total income according to the class of the people of that country. Let’s say, the total income of the very poor 300 people is 1,80,000 tri; the total income of the poor 400 people is 4,80,000 tri; the total income of the lower middle class 150 people is 7,20,000 tri; the total income of the upper middle class 100 people is 6,20,000 tri; the total income of the upper class 50 people is 3,000,000 tri.

Therefore, the per capita income of the very poor is 600 tri (1,80,000 tri / 300); The per capita income of the poor is 1,200 tri (4,80,000 tri/400); the per capita income of the lower middle class is 4,800 tri (7,20,000 tri/150); the per capita income of the upper middle class is 6,200 tri (6,20,000 tri/100); the per capita income of the upper class is 60,000 tri (3,000,000 tri/50).

We can easily understand where the problem of inequality lies. Some people have very low income, while others have very high income. This unequal distribution of income is averaged into per capita income and comes to a middle income. But everyone’s real income is not like that.

However, it is wrong to think that the standard of living of people has increased due to the increase in per capita income. If we know about the method of calculating per capita income, we will be able to understand this. Basically, three common methods are used to determine national income.

1. Production method: According to this method, the total monetary value of all material and intangible goods and services produced in a country at a given time is calculated.

2. Income method: In this method, national income is obtained from the aggregate measurement of the money earned in a year by the various factors of production employed in production. The factors of production are: land, labor, capital, organization. And the sum of the total rent, total wages or salaries, total interest and total profit received from these is the amount of national income. This method is widely used.

3. Expenditure method: In this method, the sum of all types of expenses of the people of the country at a given time is the national income. Here, expenditure refers to the consumption expenditure of the people, government expenditure and investment. However, this method is practically not used.

However, no matter which of the above methods is used, some problems remain. One of them is the double counting problem. The matter is like this: Wood is made from trees and furniture is made from wood. In this case, if the price of primary (trees) and secondary (wood) products is included, then the amount of national income will increase. Because these have already been accounted for in furniture. Therefore, only the final products have to be accounted for in national income. In addition, how to include income received from abroad in writing or through hundi is also a problem. Many complications arise in calculating national income, including the price of unsold goods, damage costs, inflation and currency contraction.

Another main issue is the people. Just as not everyone in a family is involved in earning money, not everyone in a country earns money. Most of the people in the country are unemployed and jobless. Again, the number of educated unemployed among them is very high. If per capita income is the average annual income of everyone, then how the unemployed earn so much is a surprising matter! Basically, those who are not involved in financial work have also been brought into this per capita income. It is not at all comforting to show such a problematic issue at the center of quality improvement.

Another reason for the increase in per capita income is the increase in the price of goods in the market. In that case, it adds additional money to the national income. As a result, the national income increases. But in fact, there is no increase in productivity.

It is true that if the national income increases, the per capita income will also increase. But if the government increases the income in a specific sector, then the national income will also increase. In that case, the income of a specific class of people will increase, not everyone.

The uneven distribution of national income is also a reason for the increase in per capita income. National income increases, but as a result of its uneven distribution, the rich are getting richer and the poor are getting poorer. Many people consider per capita income as an indicator of development. However, if national income is not distributed equally, it will not be satisfactory to call per capita income an indicator of development.

As a result of the production system based on modern technology that is more capital-intensive, the labor-intensive production system is decreasing, as a result of which the poor are losing jobs. Again, although this modern production system increases national income on the one hand, it mainly goes into the pockets of capitalists.

Currently, we see that despite the increase in per capita income, the purchasing power of the people is decreasing. People are struggling to buy daily necessities. Even if per capita income increases on paper and in pen, it will not contribute to development due to the rise in commodity prices.

It cannot be said that the standard of living has also increased just because per capita income has increased. If the price of goods in the market also increases with the increase in per capita income, then the additional income will go to pay for that additional price. This increase in the price of goods in the market is called inflation. Therefore, even if per capita income increases, if inflation occurs, the standard of living will never increase. Therefore, increasing per capita income without controlling the market system will not bring positive results in terms of living.

So what should be looked at to increase the standard of living? The regulators needed to increase the standard of living of people are: the price of goods and services, poverty rate, inflation rate, quality and rate of education, unemployment rate, working hours, class inequality, income-expenditure ratio.

Therefore, we only need to pay attention to those factors that actually increase the standard of living. We need to pay attention to a sustainable standard of living as a whole.

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