April 19, 2014

Are You an Average American Worker?

A Word on the “Average” Worker

The universal law of mathematics is that half of all citizens must be above average and half must be below average.  (Our job is to try and increase that average over time so that someone who is “average” today is richer than someone who was “average” 100 years ago).

In the United States, average is defined as $50,000 per household income annually.

To adjust for folks like Bill Gates on the high end and the homeless guy on the low end skewing the averages you can look at median household income instead as a better indicator of the “real” average. This figure focuses on the income level at which half of all households earn more money and half earn less.  As of a year or two ago, median household income in the United States was $52,029.

Are You an “Average” American Worker?

To land in the middle quintile – where you are richer than 2 out of 5 households but poorer than 2 out 5 households – requires an income of between $34,738 and $55,330.  That – and that only – is the average American family.  You are only “average” if you have pre-tax income of between $2,894.83 and $4,335.75 per month. Anything below this and you are below average.  Anything above this and you are above average.

Household Income in the United States

To put it as bluntly as possible, if you make $88,030 your household is “income” richer than 4 out of 5 American households.  You are not average – not even close to average.  If you make $157,178, you have broken into the top 5%, which means your household is income richer than 19 out of every 20 families.  This is equivalent to a dentist who owns his own practice marrying a real estate agent.

Our goal as a civilization, obviously, should be to increase that real inflation-adjusted median income each year, as well as other aspects that influence living standards (less environmental use, higher quality food and water, better health, longer lives, etc.)

The real problem is this: People don’t seem to have an issue with the fact that real inflation-adjusted wages haven’t increased over the past generation.  Rather, they seem to get ticked off about the fact that, over that same time period, corporate profits rose considerably.

But here’s the problem: The wages of the 1950′s, 1960′s and 1970′s were an illusion!  General Motors, Ford and the rest of those companies never had any hope of meeting the wage, benefit, and health care promises they made without going bankrupt.  It was a glorified Ponzi scheme that only happened because of the short-comings of the pension accounting rules for GAAP that were in place at the time.  After all, we know that manufacturing profits are the same as they were 50 years ago, in 1960, on an inflation-adjusted basis.

  • KansasKate

    Hmmm… Am I the only one who finds this a little confusing?

    What you describe in the first paragraph as average — half above & half below — is the median. And the median may or may not be close to the [mathematical] average. ¿No?

    For example, if we look at the families with cats on my block, the median and the average would be the same. Two of the families have 2 each, one family has 3, two families have 4 each. The median is 3 cats: there are as many families with 3 cats. The average is 3 cats: the total number of cats divided by the total number of families = 3.

    But if one of the neighbors with 4 cats turns into the crazy cat lady with 27 cats, the median is still 3 because there are still as many houses with 3 cats. But the average shoots up to 7.6 cats because there are now 38 cats divided by 5 families.

    At least, that’s my understanding of the difference between median and average; if I’m off base on this, I trust you to correct me.

  • Leon Nsk

    And I’m Russian and in the country, have fucked up in the average salary in the month 500 dollar at such prices as you have