Wednesday, August 2, 2017

Why is Average Household Income About Same as Per Capita Income?

A reader of my AT piece on foreign policy in the light of GDP asks the following question:

If per capita GDP in the US is about $53,000, then why is "household income... about the same, if a typical household is 4 people?"

Well, according to Google, average household income in the US in 2014 was $73,300. And the average household size is 2.54.

Let's try the simple math, and see how it comes out. There were 147 million employed persons (from USBLS Household Survey), and 2.54 in the average household in 2014. That seems about right, because 2014 population is 319 million. So that makes 319 million / 2.54 =  125 million households.

Per worker GDI is $17.5 trillion / 147 million = $119,000.

Per household GDI is $17.5 trillion / 125 million =  $140,000.

So what's the difference? Why are these back-of-the-envelope estimates about twice the official number?

Maybe it's because total personal income is about twice raw salaries and wages, as from the BEA, where 2015 US "Personal Income" is $15.3 trillion and "Wages and Salaries" are $7.7 trillion. The difference is things like employment benefits, capital and interest income, and government transfers.

Or maybe the bean counters are looking at an entirely different way of figuring household income, and I don't have a clue what is going on.

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