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Total Personal Income is the value most often used to calculate per capita income. It equals the total value of income received by, or on behalf of, all residents of a particular area. Total personal income is calculated by adding 1) Active Income (Earnings) 2) Passive Income, and 3) Government Transfers.
Earned income includes money earned by individuals, such as wages, salaries, and profits of individual business owners. To accurately calculate per capita income, earned income is associated with an individual's place of residence, not their place of work. A high level of earned income reflects positively on an area's economic health.
Passive income includes investment income, interest income, income from retirement plans and annuities, and rental income. A local economy does not necessarily benefit from a high level of passive income.
Government transfers include payments to individual residents from various federal, state, and local government entitlement programs. These include 1) social security and disability programs, 2) medical payments, 3) income maintenance (welfare), 4) unemployment compensation, and 5) veterans benefits.
From the ratio of the three components of Total Personal Income, certain characteristics of a local economy can be deduced. In the United States, areas which have government transfers greater than 20% of the TPI have a high retirement population, a distressed economy, or a combination of both.
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