Income, Personal Income, Household Income
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Income is the amount of cash or cash equivalent earned by an individual in a given period of time. Personal income may be earned from varied sources within or outside the country. Household income includes income from all productive services as well as transfer income earned by all individuals in a household.
Table of Contents
Measurement of Income
Personal income is calculated by adding the income received by an individual from a number of sources, including:
- Wages and salaries
Income is the amount of cash or cash equivalent earned by an individual in a given period of time. Personal income may be earned from varied sources within or outside the country. Household income includes income from all productive services as well as transfer income earned by all individuals in a household.
Measurement of Income
Personal income is calculated by adding the income received by an individual from a number of sources, including:
- Wages and salaries
- Interest on investments
- Dividend on shares
- Rent on property
- Worker’s compensation fund
- Proprietor’s earnings
- Transfer payments, such as social security and pensions
Personal income can also be derived from the national income, where:
Personal income = National income – public sector surplus – corporate tax – undistributed profit of companies + all transfer income.
Household income is measured by adding the personal income of all the income earners in a household and should not be confused with family income. Household income takes into account all the households of a region. Family income, on the other hand, considers only those households that have two or more people related by blood relation or through marriage or adoption.
Advanced Tools for Calculating Income
The measurement of income depends on the type of income being evaluated, such as:
- Personal disposable income
Personal income is not entirely available at the household’s disposal. The amount that is left after deductions for saving and spending is known as personal disposable income (PDI).
Personal disposable income = Personal income – personal taxes – other fees –contributions to social security insurance – fines
PDI is a better indicator of the economic scenario of a country, since it shows the actual purchasing power of the people.
- Per capita income
Per capita personal income is calculated by dividing the combined personal income of individuals of a region by the total population of that region. If the per capita income grows persistently, it implies economic progress and vice versa.
Examples of per capita income rates (CIA Factbook, 2003) are:
| Region | Per Capita (US$) |
| East Asia and Pacific | 1,080 |
| Europe and Central Asia | 2,570 |
| Latin America and the Caribbean | 3,260 |
| Middle East and North Africa | 2,250 |
| South Asia | 510 |
| Sub-Sahara Africa | 490 |
- Median household income
This is calculated by taking the average of the highest and lowest income in a household. This method is not drastically influenced by high and low incomes in a household, hence, showing a more stable picture.
Measurement of income (personal and household) helps in the evaluation of the general economic conditions. It is the base for national income accounting.
