March 27, 2008

Who Makes $25,000

Stupid Question ™
March 30, 2000
By John Ruch
© 2000

Q: If I make $25,000 a year, what percentage of the world’s population makes less than I do?

A: A big enough percentage that nobody’s ever bothered to calculate it.

“Twenty-five thousand dollars is sort of a mind-boggling number for most people,” one economist told me. Wage questions in global economics generally run more along the lines of, “How many people live on $4 a day?”
Our economist guessed that about 85 percent of the population (or 5.1 billion people) makes less than $25,000. “And that is probably conservative,” he said. “Even when you adjust for real purchasing power.”

And that’s the big pain of this calculation: figuring exchange rates and comparative purchasing power.

There are specific countries, of course, in which no math is necessary. Drop a line to, say, the Bulgarian embassy, and here is what you get: “This is a very easy question. One hundred percent.” (Less glibly, they said that maybe 1 percent of the Bulgarian population makes $25,000 or more.)

But in trickier cases, one way to think about it is to compare per capita incomes—the amount of money each person would receive if their country’s gross domestic product (the total income of the national economy) was equally divided.

The US per capita income is $30,200—second only to Luxembourg at $33,700. The global average per capita income is $7,000 (and goes as low as $400 in places like Guatemala).

But wealth, of course, is not really evenly divided. The United Kingdom, France, Canada and Italy all have lower per capitas than the US, but distribute wealth more evenly. Our rich are richer, our poor are poorer, and the average worker does not make $30,200 a year.

For a single US wage-earner, $25,000 is in the middle-income bracket (though at the low end of it). But as far as America’s living expenses go, it’s probably not enough to sustain true middle-class living.

In Arkansas and West Virginia, $25,000 is the median income of an entire household (as opposed to a single wage-earner). In 1995, one-third of all US children lived in a home with an income less than $25,000.

Thirteen percent (or 35 million people) live below the federal poverty levels (about $8,000 for a single person, $17,000 for a family of four). And our economist estimates that 25 percent of the US population makes less than $25,000.

A final way to think about $25,000 is this: In response to World War II expenses, and hopping onto a wealth-redistribution bandwagon still rolling from the Depression, President Franklin Roosevelt proposed a national “maximum wage” above which all further earnings would be taxed 100 percent.

The wage? You guessed it: $25,000 a year.

Of course, that was a lot more money back then.

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