We often see “average” pay levels quoted in media, particularly when discussing labor negotiations. Why is this misleading, and why is using median (as the US Census Bureau does in many of it’s data summaries) better?

Median means “mid point” – half of the data is above the median, half is below, and is a far more accurate indication of values applicable to most of a population, here’s why:

Imagine a group of 10 employees. 9 of them make $50,000/year, and one (the CEO) makes $500,000/year.

Total payroll would therefore be $50,000 * 9 = $450,000 + $500,000 * 1 = $500,000, total $950,000.

The average of this – $950,000/10 – is $95,000.

Now… you worked for this company and a friend asked you about how much people make there, would you tell them “the average pay is $95,000/year”? And if you did, would you feel guilty about misleading them so badly?

After all, only ONE employee makes that much (and they make far more…)

The median of this group, however, would be $50,000. Which most of them make. If that same friend asked the same question and you told them “the median pay is $50,000/year” wouldn’t you feel a lot better about setting their expectations correctly?

Median is a better way to get an accurate idea of what a population of employees make.