I recently got interested in business and economy. Of course, I still don’t know much about it. My friend and I were arguing the other day about some notions. His point was:
«The GDP per inhabitant of State A represents 82% of the GDP per inhabitant of State B. However, the average salary of State A is only 8% lower. Logically, it should be 18% lower. So people in State A are much wealthier than they should be».
State A State B
GDP per inhabitant 144k 175k
(in millions)
Averrage salary 26,2k 29k
I don’t know why, (and I don’t have any argument to defend my point) but this seems wrong to me. I don’t think that you can compare two different things such as the GDP per inhabitant and the average salary.
What do you guys think? Can someone help me?
Thank you very much
Are these average salaries before or after state taxes?
What is the difference in unemployment rates between the two states? Unemployed persons would be counted in the GDP per capita but not the average salary.
There is not a one to one correlation of per capita income to per capita GDP.
Neither metric are an absolute measure of relative wealth however there is a strong correlation of high GDP to other factors like healthcare, education, and other standard of living indicators.
The GDP of a state measures the market value of all goods and services produced within the state. Not all of the value of such production accrues to workers; some accrues to the capitalists who supply land, machinery, and working capital. Thus State B probably has more capital-intensive industry than State A.
As I think about this some more, there is a more fundamental issue here. Average wages are measured per year of work. Per capita GDP is measured per person per year, whether the person works or not. State B may simply have more non-wage earners (children, housewives, elderly, unemployed, etc.) than State A.
If total wages bore the same relationship to total GDP as above, then you would look at the labor-vs.-capital split I mentioned previously.