What is the “Average” American Salary?

In America, the richest 1% of households earned almost 20% of the income in 2012, which points to a very wide income gap. This presents many social and economic problems, but also a statistical problem: what is the “average” American’s salary?

This average is often reported as GDP per capita: the mean of household incomes. In 2011, the mean household earned $70,000. However, the majority of Americans earned well below $70K that year. The reason for this misrepresentation is rich people: In 2011, Oracle CEO Larry Ellison made almost $100 million, alone adding a dollar to each household’s income, were his salary distributed among everyone – as indeed the mean makes it appear it is.

Here is a graphic of American inequity:

Income Distribution in America: the blue part of the last bar represents the earnings of the top 5%
Income Distribution in America: the blue part of the last bar represents the earnings of the top 5% of households

As you can see, the mean would not be such a poor representation (or rich representation) of the average salary if we discounted the top 5%.

In fact, the trimmed mean removes extreme values before calculating the mean. Unfortunately, the trimmed mean is not widely used in data reporting by the agencies that report incomes – the IRS, Bureau of Economic Analysis and the US Census.

In this case, the median is a much better average. This is simply the income right in the middle of the list of incomes.

    American Household Income: the Mean is much higher than the Median
American Household Income: the Mean is much higher than the Median

As you can see, whether you use the Mean or Median makes a very big difference. The median household income is $20,000 lower than the mean household income.

Of course, America is not the only country with a wide economic divide. China, Mexico and Malaysia have similar disparities between rich and poor, while most of South America and Southern Africa are even more polarized, as measured by the Gini coefficient, a measure of economic inequality.

Data from the US Census. Available income data typically lags by two years, which is why graphs stop at 2011; 2012 Data is projected. Graphics produced on R.

Abbas Keshvani

Advertisements