Personal Disposable Income
Personal disposable income measures how much money is available for personal spending after taxes and other amounts are deducted.
Why This Matters
Disposable income and wealth are the two most important determinants of the level of household consumption (Macklem, 1994), and as such disposable income is an important indicator of economic well-being. Personal disposable income measures how much money is available for personal spending and saving after paying income taxes and pension contributions to the government. It represents the money available to a household for spending on goods or services or saving and investment and reflects the true purchasing power of the consumer. If disposable personal income increases then consumer buying power has likely increased. This is a good indicator that consumption could rise, but in practice this relationship is complex (Tainer, 2006). This is because what a person ultimately does with their disposable income depends partly on their level of wealth, since a relatively poorer person will have a higher marginal propensity to consume than a relatively richer one, (i.e. they will spend more of their disposable income than a richer person will on consuming instead of saving). Along with household financial wealth, disposable income is used in the OCED’s Better Life Index as the main indicator for the Income category (OECD, 2013)
Measurement and Limitations
According to Statistics Canada, personal disposable income is defined as the amount left over after payment of personal direct taxes, including income taxes, contributions to social insurance plans (such as the Canada Pension Plan contributions and Employment Insurance premiums) and other fees. It is a measure of the funds available for personal expenditure on goods and services and personal saving for investments as well as personal transfers to other sectors of the economy. Because the share of disposable income that ends up going toward consumption is also driven not only by disposable income but by wealth as well, disposable income may be a more effective indicator of economic well-being when understood alongside measures of wealth.
Economic Development Winnipeg. (2016). Personal and Disposable Income per Capita – Winnipeg, Census Metropolitan Area, Manitoba and Canada. Retrieved from: http://www.economicdevelopmentwinnipeg.com/uploads/document_file/personal_disposable_income_per_capita.pdf?t=1418331678
This indicator is updated annually as the data becomes available.
Economic Development Winnipeg. (2014). Personal and Disposable Income per Capita – Winnipeg, Census Metropolitan Area, Manitoba and Canada. Retrieved from: http://www.economicdevelopmentwinnipeg.com/uploads/document_file/personal_disposable_income_per_capita.pdf?t=1418331678
Macklem, R. T. (1994). Wealth, disposable income and consumption: some evidence for Canada. Bank of Canada. Retrieved from: http://www.econ2.jhu.edu/people/ccarroll/papers/cos-wealtheffects-literature/papers/macklem.pdf
OECD. (2013). Better Life Index. Retrieved from: http://www.oecdbetterlifeindex.org/
Statistics Canada. (2007). Review of Personal Disposable Income. Retrieved from: http://www.statcan.gc.ca/pub/13-605-x/2003001/chrono/2003prov/4151911-eng.htm
Tainer, E. M. (2006). Using economic indicators to improve investment analysis (Vol. 315). Retrieved from: http://books.google.ca/books?id=a55R0SbKZRUC&pg=PA71&lpg=PA71&dq=using disposable income as an indicator&source=bl&ots=YN5nU0S3gm&sig=BFHdL4zMm3vD9oYvTaD0ZVe-J00&hl=en&as=X&ei=SWLxUuSGG8il2wWFtICIAw&ved=0CGYQ6AEwCQ#v=onepage&q=using%20disposable%20income%20as%20an%20indicator&f=false
Personal Disposable Income Sustainable Development Goals
1. End poverty in all its forms everywhere
Extreme poverty rates have been cut by more than half since 1990. While this is a remarkable achievement, one in five people in developing regions still live on less than $1.90 a day, and there are millions more who make little more than this daily amount, plus many people risk slipping back into poverty.
Poverty is more than the lack of income and resources to ensure a sustainable livelihood. Its manifestations include hunger and malnutrition, limited access to education and other basic services, social discrimination and exclusion as well as the lack of participation in decision-making. Economic growth must be inclusive to provide sustainable jobs and promote equality.
Related Personal Disposable IncomeTargets
By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions
8. Promote inclusive and sustainable economic growth, employment and decent work for all
Roughly half the world’s population still lives on the equivalent of about US$2 a day. And in too many places, having a job doesn’t guarantee the ability to escape from poverty. This slow and uneven progress requires us to rethink and retool our economic and social policies aimed at eradicating poverty.
A continued lack of decent work opportunities, insufficient investments and under-consumption lead to an erosion of the basic social contract underlying democratic societies: that all must share in progress. . The creation of quality jobs will remain a major challenge for almost all economies well beyond 2015.
Sustainable economic growth will require societies to create the conditions that allow people to have quality jobs that stimulate the economy while not harming the environment. Job opportunities and decent working conditions are also required for the whole working age population.