When it comes to economic indicators as litmus tests on the state of the economy, the measurement of mean or median income is often discussed. What has happened to the “typical” person’s income over time? What does the “typical” income tell us about the state of income distribution? Are people better off today than they were yesterday? A lot of questions can be discussed about this topic, but it is important to be able to understand some of the basic statistical differences between the measurement of mean and median income so that a more accurate representation can be drawn from what is actually being discussed.
The technical distinction between these two measurements may seem inconsequential, but it really can matter. The short answer of which measurement is more important is rather vague: it depends. In order to answer that question more effectively you would need to know how your data is distributed.
Using Kentucky income as an example, the mean income is calculated by dividing the total combined income of all Kentuckians by the number of incomes that you combined. This measurement would be fine for an economic indicator if the income data you were using was evenly distributed where 50% of Kentuckians made income higher than the mean and 50% made less. However, that is not the case with Kentucky income data.
If you look at the data published by The United State Census Bureau (illustrated in the chart below), you can see that significantly more people make lower incomes which means that the data is not evenly distributed. Instead it is skewed to the left – meaning that a larger proportion of people have incomes lower than the mean. Using the mean, or the average, in this case could be misleading because a few wealthy millionaires in an otherwise poor county could substantially raise the mean income making it look like people have higher incomes on average than they actually do. Bureau of Labor Statistics data on annual wages of Kentucky illustrates this.The mean wage is $39,520, but the median wage is $31,220 – a difference of $8,300.
In this case, the median, the middle-most value, would be a more accurate representation of the typical Kentuckian income because less than 50% of people are making more than mean income. Knowing that, we can look at a breakdown of median incomes of each county in in Kentucky and highlighting those of the Southcentral Kentucky area.
Chris Yates, Graduate Assistant
WKU Center for Applied Economics