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Opinion: 64% of workers in Ireland earn less than the 'average' salary

Experts agree that the median average is a better indicator of typical salaries, so why do policymakers always focus on the mean average? writes Felim O’Rourke

Felim O'Rourke

OUR TAXATION SYSTEM and welfare systems are unfairly weighted against low and middle income, working couples with children.

These same young working couples are the life-blood of our society and community, but they are often under severe financial pressure as they work hard in full-time jobs, while raising a family.

The child tax credit was removed from such couples in the 1980s recession and never restored. 

Those couples in full-time work have no access to free healthcare, for themselves or their children and face whopping childcare costs. For some of them after they pay out for childcare, they are left with less in their pocket that those on social welfare. 

Forming a recognised couple is a financial impediment as well, compared to those who claim to be living separately. 

As a person over 70, I get free travel, a free TV licence and free doctors visits – but it is young, working parents that need a break more than me. 

To top it off, if either person in this young couple is a public servant, they are also likely to be on lower pay than most of their colleagues due to the arrangement to cut pay for new recruits. 

So when you add it all up it does seem that working couples, on low to medium incomes, with children are treated pretty unfairly.

Did you ever wonder why?

I’m convinced that at least part of the reason is that the policy-makers (that is the politicians and the senior civil servants who advise them) are all in a completely different income bracket and  have no idea what life is like for the average worker. 

This is compounded by the fact that those policymakers also think that most workers are better off than they actually are, due to relying on misleading statistics on the average salary in Ireland. 

The median versus the mean

Policymakers rely on the Central Statistics Office (CSO) for their information on the average income of workers and the CSO publishes quarterly and annual releases on earnings and income for full and part-time workers.

These releases always focus on ‘mean average’ incomes and the most recent CSO Release Annual Earnings for 2017 says that the average earnings in 2017 were €37,646. 

You may recall from your school-learned maths, that the mean average is arrived at when you add up all the numbers and then divide the total by the number of numbers.

While the median average is the value that is slap bang in the middle of the list of numbers. 

Both averages have their uses, but in the case of salaries, it is generally acknowledged that the mean average doesn’t tell us what a typical worker earns, while the median average is a really good indicator. 

Take the following example. Five people work together in an office-based company in Cork city centre. Four of them earn €30k per year, but the manager earns €80k.

To get the mean average you divide the total, which is €200k by 5 and that gives €40k.

But would you say that €40k the typical salary of a worker in that workplace? The majority of workers in the business earn €30k and only one person earns more. 

The exact same anomaly is reproduced at national level. Very high earners drive up the mean average while the majority of full-time Irish workers earn less than the €37,646.

Typical salary

The median gives a better insight into what is a typical salary for an Irish worker is. 

The most recent information produced by the CSO which provides information on the median income is the Earnings Analysis using Administrative Data Sources (EAADS). Unfortunately, the most recent figures published are for 2014 so we will have to work with those. 

The EAADS data shows that mean average earnings of all workers in 2014 was  €668.88 per week which amounts to a salary of €34,782 over the 52 weeks of the year.

However, when you look at the median average income, the situation is quite different. The median income was €528.81 a week or  €27,456 per annum in 2014.

So in 2014, the mean average was 26% above the median average. 

The EAADS document also provides a graph showing the Distribution of Workers by Earnings Level for 2014. By analysing that graph we can calculate that about 64% of all workers earned less than the mean average income in 2014. 

On the same page as that graph, you can see that the CSO acknowledges that for salary distribution, the median is more useful than the mean – since high earners “positively skewed earnings distribution of employees in Ireland.”

“In such cases, median earnings (the middle earner in the economy or sector) may be a more reflective figure of the average earnings of employees in the economy or sector.”

Since it is so widely acknowledged that the median is a better indicator of typical salaries than the mean- then why do commentators and policymakers continue to focus on the mean average?

The most recent data released by the CSO indicates that the mean average income for all workers for 2017 was €37,646.

Assuming that the distribution is similar to 2014 when 64% of workers earned less than the mean average we can estimate that the typical worker in Ireland probably earned around €29,740 in 2017.

Considering that the CSO acknowledge that relying on the mean average for salaries skews the figures, perhaps they should at least publish both the median and the mean average incomes each year. 

Then at least the public, the media and policymakers could decide for themselves which average tells them what they need to know. 

Felim O’Rourke is an economist from Sligo with a particular interest in the impact of tax and welfare policy on ordinary workers.

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Felim O'Rourke

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