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Median household income
From Wikipedia, the free encyclopedia
The median household income is commonly used to provide data about geographic areas and divides households into two equal segments with the first half of households earning less than the median household income and the other half earning more.[1] The median income is considered by many statisticians to be a better indicator than the average household income as it is not dramatically affected by unusually high or low values."[2]
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Median income is the amount which divides the income distribution into two equal groups, half having income above that amount, and half having income below that amount. Mean income (average) is the amount obtained by dividing the total aggregate income of a group by the number of units in that group. The means and medians for households and families are based on all households and families. Means and medians for people are based on people 15 years old and over with income. |
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Household income is not to be confused with family or personal income. Household income is often the combination of two income earners pooling the resources and should therefore not be confused with an individual's earnings. Even though the term family income may sometimes be used as a synonym for household income, the US Census Bureau defines the two differently. While household income takes all households into account, family income only takes households with two or more persons related through blood, marriage or adoption into account.
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Median household income for selected countries is shown in the table below. The data for each country has been converted to US dollars using Purchasing Power Parity (obtained from the OECD).[3]
| Country | Median household income national currency units | Year | PPP rate (OECD) | Median household income (PPP) |
|---|---|---|---|---|
| Switzerland[4] | 95,772 CHF | 2003 | 1.76 | $54,000 |
| California, US[5] | US State | $54,000 | ||
| United States | $48,000 USD | 2006 | 1.00 | $48,000 |
| Canada [6] | $53,528 CAD | 2005 | 1.25 | $43,000 |
| New Zealand [7] | $62,556 NZD | June 2007 | 1.47 | $43,000 |
| United Kingdom [8] | £24,700 GBP | 2004 | 0.619 | $40,000 |
| Australia[9] | $53,404 AUD | 2006 | 1.39 | $38,000 |
| Ireland | €35,410 EUR | 2005 | 1.00 | $35,000 |
| Scotland, United Kingdom[10] |
£21,892 GBP | 2005 | 0.619 | $35,000 |
| West Virginia, US[11] | US state | $33,000 | ||
| Israel[12] | ₪101,412 ILS | 2005 | 3.23 | $31,000 |
| Hong Kong[13] | $186,000 HKD | 2005 | 5.96 | $31,000 |
| Singapore[14] | $45,960 SGD | 2005 | 1.55 | $30,000 |
Achieving real gains in household income can be very difficult. Since 1980, US GDP per capita has increased 67%[1], while median household income has only increased by 15%. An economic recession will normally cause household incomes to decrease, often by as much as 10% (Figure 1).
Median household income is a politically sensitive indicator. Voters can be disapproving of their government if they perceive that their cost of living is rising faster than their incomes. The media will often fuel this dissatisfaction by exaggerating or by unfairly blaming a problem on the current leadership, when in reality it is probably caused by a problem in the economy. Figure 1 shows how US incomes have changed since 1970. The periodic decreases were all caused by economic recession. The last recession was the early 2000s recession and was started with the bursting of the dot-com bubble. This recession affected most advanced economies including the European Union, Japan and the United States.
The relationship between economic activity and household income varies substantially from country-to-country. Consider the situation of Equatorial Guinea, a small African oil state with one of the world's highest GDP per capita (US$50,200). Equatorial Guinea's GDP per capita is 50% higher than Australia's, yet life expectancy in Equatorial Guinea is less than 50 years and most of their citizen's live in abject poverty, the vast majority subsisting on less than $1 per day.
| Equatorial Guinea | Australia | Iraq (war torn) | |
|---|---|---|---|
| GDP per capita (PPP) | $50,200 | $33,300 | $1,900 |
| Biggest export | Oil | Coal | Oil |
| Life expectancy | 49.5 | 80.6 | 69.3 |
| Infant mortality | 87 | 5 | 47 |
Equatorial Guinea is corrupt country, which helps explain why the normal people are not benefiting from the oil wealth. However this issue isn't just about corruption. A comparison between median household income and GDP per capita for advanced countries is shown in Figure 2. These countries do not have serious corruption problems and yet there is only a weak correlation (R=0.16) between the two indicators. Showing that even when comparing advanced countries, differences in economic activity do not have a predictable effect on household income.
Figure 2
Source: IMF GDP per capita[2]
There is a common misunderstanding that GDP per capita can be used to predict median household income. For example, Ireland and the United States have a similar GDP per capita, from this people sometimes assume that their household incomes are also similar, when in reality US incomes are much higher when adjustments for purchasing power parity are made. The main reason for the disparity is that household consumption only makes up about 43% of Ireland's GDP, whereas household consumption makes up about 67% of America's GDP[3].
Another misunderstanding is the idea that if the economy is growing (GDP growth) then household incomes are also growing. In reality economic growth doesn't necessarily equate to growth in median household income. For example the US economy grew 8% over the 2000-2006 period but median household income actually fell 2%.
A strong economy with a high GDP per capita is a key requirement to deliver prosperity to the people, but it is not the only requirement. So in a sense GDP per capita is an indirect indicator of prosperity, whereas median household income is a more direct measurement.
- Household income in the United States
- Median household income in Australia and New Zealand
- Income quintiles
- Poverty in the United States
- Income distribution
- Median
- ^ a b US Government, the different between =2006-06-29.
- ^ US Census Bureau on the nature the median in determining wealth. Retrieved on 2006-06-29.
- ^ OECD, PPP conversion rates. Retrieved on 2006-01-20.
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