Monday, March 7, 2016

Comparing median household income in the United States versus the social democracies

Image: Median income and median per capita income of the United States vs. the social democracies (source)

As this graph clearly shows, median household income (blue bars) is pretty similar between the United States and the social democracies. I'm using Gallup World Poll data, and as the authors point out, these data correlate tightly to aggregate wage data. This is a good validation of their results. Per capita household income (orange bars) is simply each household's income divided by the number of people in that household.

Some technical notes:

Obviously, I'm using median income because average income skews upward dramatically in the United States due to high income inequality. Whatever you think of inequality, we can all agree that average is not a good measure of central tendency in this case.

I'm not using OECD data because they report median household income in a misleading measure of "disposable income," which means post-tax post-transfer income. The biggest reason this is misleading is because in the social democracies, non-disposable income pays for a household's health insurance, but in the United States, non-disposable income does not include a household's health insurance. Health insurance is not exactly an optional luxury item, and since disposable income in the United States must be used to pay for a non-disposable benefit (private employer-sponsored health insurance), this is a very misleading measure. For much more about this, read this page: because health insurance is so expensive in the United States, the only possible reason to use the OECD's measure is to mask the private social welfare spending of a typical American family.

It's also important to note that in the social democracies, non-disposable income also entitles households to free child care, free university tuition, retirement pensions, etc; American households must spend their disposable income on these items as well. That's why I don't use OECD disposable income data.

Finally--and most importantly--the wealth and resources of a country can never be a reason not to support the welfare state. Due in part to the abundance of natural resources, Norway and the United States are two of the richest countries on earth. And Kerala, a state in India, has a Scandinavian-style welfare state despite having a per capita income just 10% that of Brazil. No matter the resources, investing in the welfare state is always good for people. I've made this point exhaustively here and here.

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