Tuesday, March 22, 2011

Who cares about the average income!

as posted on

Apparently this last year the per capita income of Indians increased to Rs. 46,492 per year. That’s Rs. 3874 ($85) per month. Glory days! The ‘average’ Indian is no longer living in ‘poverty’. But really, per capita income is an average and who cares about the average income when the average Indian hardly exists. The distribution of income is highly skewed and looks like this (see my last related post ‘It’s not a pyramid’). You can see where that places the average.

Yet when we think of an average we make certain assumptions about the spread or distribution of the values that go into this number. If you say the average height of people in India is around 5’ 5” with a standard deviation of 5”, it’s pretty intuitive what that means – that when you arrive in India you will find most people around 5’5” with about 5 inches variation this way and that. In large part it means that we all look similar and can fit in the same seats, sleep on the same size beds and fit through the same doorways. So if we hear that the average height of Indians has increased, we think immediately that we are collectively growing taller as a population and not that a small group of freak giants suddenly emerged. Similarly, reports of an increase in the average income suggest to us that we are collectively better off. Are we?