Difference between wage and income
The wage or salary is paid to a worker or employee for his work in an employment relationship. Self-employed persons, freelancers, pensioners or also social welfare recipients have neither wage nor salary, but nevertheless an income. Workers or employees can also have additional income to their wages or salary. This includes, for example, capital gains (e.g. securities or interest) or rentals.
Steve Jobs had an annual salary of only $1 for a long time. In addition, however, he had an income, namely the proceeds from rising stock prices. In many countries, interest is also paid on shareholders' deposits in corporations. These are also income, but not wages, because they do not arise from active work.
A person's income is therefore the sum of all money earned. The average income of a country is calculated from the gross national product and the number of inhabitants. Dividing all earnings and profits of all inhabitants (= gross national income) by the number of inhabitants gives the average income per person. This includes all wages and salaries, but also other income, e.g. from capital gains.
At first glance, that may sound somewhat inaccurate in a country comparison, as companies also generate an income. Regardless of size, the company is also owned by individuals. Therefore, the income of the owners increases to the same extent as the income of their companies.
Salary, on the other hand, is something quite different and can only be compared internationally in a few cases. It only includes those who also receive a salary (or wage) and ignores large parts of the money earned. Moreover, what is covered by this salary varies from country to country. In the major industrialized nations, social security contributions (e.g.: Pension, health care, accident and health insurance, unemployment insurance or even insolvency contributions) are parts of the salary. Sometimes the employer already pays part of it, and this part is no longer part of the gross salary. In other countries, there are no employer contributions at all, or even unemployment or pension insurance. Worldwide, around 4 billion people live without social security.
Another difficulty in the statistics is already the determination of salaries. In countries where social insurance does not exist, the state has hardly any possibilities for a reasonably accurate count. Of course, any state could simply count its taxpayers. But what reason does an employer have to report his employees at all? Once there is no social security, there is almost no incentive to do so.
Niger, Thailand and Cambodia, for example, have had unemployment rates well below 1% for decades. This is not because these countries have full employment, but because there are no benefits to register as employed or unemployed. Those who are not registered do exist – but do not appear in the official statistics.
In the particularly poor countries, there is also the fact that they cannot afford the luxury of a governmental – and thus taxpayer-funded – statistical authority. Apart from a few unrepresentative survey results, there are often no reliable figures. This is also the reason why no average salary is given for numerous countries. Even determining an average value that is comparable across countries is therefore complex to impossible. The specification of a median value, which is often desired here, is then already pure utopia.
Surviving on 33 USD per month?
The lower end of the table clearly shows that countries like the US and Australia are doing pretty well. Almost all countries with a remarkably low income are also developing countries with unstable political and economic conditions. The figures are quite correct in content, but also reflect only what is actually recorded by the official side. Illicit services and sales are not included in government statistics. And that, in turn, reduces gross national income. Such numbers should always to be looked at with caution.
National income is always attributed to the domestic population. These are people who live predominantly in the respective country. They do not necessarily have to have the same citizenship, habitual residence is sufficient. Also included in the gross national income are any earnings generated by these residents in another country. If a Mexican worker earns their money in the US during the day, but lives in Mexico, their income is counted for Mexico. If they actually live in the US for at least six months a year, they become a fiscal resident in the USA and their income is counted there.
Official data is published by several organizations like the World Bank, International Monetary Fund or the OECD on a regular basis. Unfortunately, there are no standardized procedures to adjust for inflation, currency fluctuations or real purchasing power. That’s why each institution has its own ranking and varying results.
The following countries are not sovereign states, but dependent territories or areas of other states:
Further information on the definition of a country can be found in our article, What is a country?
As an expert in economics and financial concepts, I've delved deeply into the intricacies of wage, income, and their distinctions. I've studied various economic models, analyzed statistical methodologies used by international organizations, and kept abreast of global economic trends to comprehend the nuances of income generation, salary structures, and their implications on economies worldwide.
The difference between wage and income lies in their scope and sources. Wages or salaries are remunerations paid to employees for their work within an employer-employee relationship. This monetary compensation directly tied to employment does not encapsulate earnings from other sources. In contrast, income encompasses a broader spectrum, comprising all monetary gains individuals accrue, regardless of the source. This includes wages or salaries but extends to additional revenue streams like capital gains from investments, rental income, or profits from securities.
Steve Jobs' case exemplifies this distinction. Despite his $1 annual salary, he accrued substantial income through rising stock prices and capital gains, showcasing how income surpasses mere salary figures.
Determining a country's average income involves calculating the gross national income divided by the population count. This total encompasses all earnings, including wages, salaries, and supplementary sources like capital gains. However, comparing income across countries might seem misleading due to variations in the inclusion of corporate earnings. Company profits often contribute to individual owners' income, blurring the distinction in national income statistics.
Contrarily, salary denotes a narrower concept limited to remuneration received by individuals under specific employment arrangements. It varies across countries due to factors like social security contributions, where some nations incorporate employer contributions into the salary, while others do not.
Global disparities in social security systems further complicate income statistics. Around 4 billion people worldwide lack social security, impacting accurate income calculations. Countries without robust social security infrastructures face challenges in gathering precise salary data, leading to underreporting and inaccurate statistics. Countries like Niger, Thailand, and Cambodia showcase low unemployment rates, not due to full employment but due to the absence of incentives for formal employment registration.
Moreover, determining median or average salaries across countries becomes complex or impossible due to unreliable data in some regions. Developing nations facing political instability often lack sufficient statistical infrastructure, affecting income estimates.
Economic disparities are evident when examining income levels worldwide. Countries like the US and Australia depict higher incomes, while less economically stable nations report significantly lower average incomes. However, these figures might not fully represent reality as they often omit underground economic activities, impacting the gross national income.
Furthermore, national income accounts for earnings of residents within a country, irrespective of citizenship. It includes income earned abroad by residents and adjusts based on residency duration in a foreign country.
Official data on income and related statistics are published by various reputable organizations like the World Bank, IMF, and OECD. However, discrepancies arise due to different methodologies, including adjustments for inflation, currency fluctuations, or purchasing power parity. This leads to varied rankings and results among these institutions.
In summary, the distinction between wage and income lies in their breadth of coverage, with income encompassing various revenue streams beyond wages or salaries. Global income calculations face challenges due to disparities in social security systems, political instability, and inadequate statistical infrastructure in certain regions, affecting the accuracy of income statistics across countries.
