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13 April 2009

Median versus Average Income in the US

The purpose of this post is to show the large gap in income in America. I was going to go further but seeing as how you can't even find the average income in the US on Google, Wikipedia, etc. I thought this was a story in and of itself.

If you type in U.S. GDP (gross domestic product) into Google you get 13.84 trillion. That's the total amount of money that our economy produces every year.

If you ask Google the U.S. population you get about 304 million (as of July 2008).

If you then take GDP and divide it by population something interesting happens; $45,553 comes out. That seems a bit high, no?

I'm not really trying to get into the current market events so much, as it has little to do with what I'm currently trying to show. The problem with dividing GDP by population is that the entire population doesn't work. Currently in the US about 154 million people comprise the workforce, and only 140 million of those have jobs, the rest are unemployed (currently about 9%, all of this can be found on the Bureau of Labor Statistics website, page 11). In March of 2008 there were 145 million working people in the US. If you take that same 13.84 trillion in GDP and divide it by a working population that numbers 145 million you get about $95,000 per worker... what? Only about 6.2% of workers make that much or more money, and the median wage of an individual over 25 years old is $32,000 for everyone or $39,000 for the full time worker.

Am I doing something wrong? Medians tend to be representative of "typical" in a sample size and not necessarily closely related to average, but for this to be the case there needs to be a large disparity in income. Of course we all know that this is the case, but still... that's a lot more than I expected. If $39,000 is typical and $95,000 is average that essentially means there are a lot of people making about $40K a year and a few people making a million a year. I'm a bit worried I'm assuming something I shouldn't be. This calculation worries me because I don't believe in the general notion of a meritocracy. That is, that wages follow hard work. It does to some extent, but not like many people believe. To attain that kind of money we're talking about you must rely on the labors of others. Others who are paid the 'median' of 2.5 times less than the average.

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