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Median household income
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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.
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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. 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 (see Common Misunderstandings section).
Median household income and the economy
Since 1980, U.S. gross domestic product (GDP) per capita has increased 67%, 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.
Many economists are concerned that another recession may be imminent. 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 household income.
Figure 2
Source: IMF GDP per capita
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