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. 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." The U.S.
Census Bureau uses the following definitions of median and mean
income:
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 U.S.
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.
International statistics
Median household income for selected countries is shown in the
table below. The data for each country has been converted to U.S.
dollars using
purchasing power
parity (PPP) (obtained from the
Organisation
for Economic Co-operation and Development). Note that
PPP-adjusted household income is not reflective of relative buying
power (or prosperity) between countries because different
governments subsidize different services.
Median household income and the economy
Since 1980, U.S.
gross domestic
product (GDP) per capita has increased 67%
[149204], 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 critical of their government if they perceive that
their
cost of living is rising faster
than their income. Figure 1 shows how American incomes have changed
since 1970. The last recession was the
early 2000s recession and was started
with the bursting of the
dot-com
bubble. It affected most advanced economies including the
European Union, Japan and the United States.
The
current crisis began with
the bursting of the
U.S.
housing bubble, which caused a problem in the dangerously
exposed
subprime mortgage
market. This in turn has triggered a global
financial crisis.American household incomes
have only recently recovered from the
early 2000s recession (see Figure
1).
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 (USD$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 citizens
live in abject poverty, the vast majority subsisting on less than
$1 per day.
Equatorial Guinea is a corrupt country, which helps explain why
most of the people do not benefit 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 median household income.
Figure 2
Source: IMF GDP per capita[149205]
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