# Where are you on the global pay scale?

• 29 March 2012
• From the section Magazine

If there were no rich and poor, and everyone had an equal share of the world's total pay packet, how much would they earn?

The total value of world income is closing in on \$70 trillion (£43.9tn) per year, andthere are seven billion people in the world, so the average income is heading towards \$10,000 (£6,273) per person per year. Easy.

But not everyone has a job and some of those seven billion are children. So another question you could ask is: "What is the world's average wage?"

That is more tricky to answer, but a group of economists at the United Nations' International Labour Organization (ILO) has had a go, though they have never gone public with this information. Until now.

Let's consider the scale of the Herculean task the number crunchers at the ILO set themselves.

First, they work out the total wage bill for every country in the world. To do that they get the average salary from each office for national statistics, and multiply that amount by the number of earners in each country.

In this way, they are able to give more weight to countries which have more workers in them. The average salary in China has more influence on the world average than the average salary in New Zealand, where many fewer people live.

Once they have the total wage bill for each country, they add them all together and divide by the total number of earners in the world.

That gives you the answer - the world's average salary is \$1,480 (£928) a month, which is just less than \$18,000 (£11,291) a year.

But these dollars are not normal US dollars. The economists use specially adjusted exchange rates - the average salary is calculated in Purchasing Power Parity (PPP) dollars. One PPP dollar is equal to \$1 spent in the US.

Essentially, the PPP dollar takes into account the fact that it is cheaper to live in some countries than others. The idea is that we don't care how many actual dollars somebody is paid in, say, China, but we care about what sort of stuff those dollars can buy.

"If someone in China takes their salary of 1,500 yuan per month and they go to the bank, they will actually get \$200," ILO economist Patrick Belser explains.

"But this is not what we use to compute this global average, because what is important here is what people are able to buy with these 1,500 yuan, and this is where we compare to the purchasing power of the US dollars and find that it is actually equivalent to around \$400."

Another way of putting it is that the conversion to PPP dollars expresses how much it would cost you in the US to get the equivalent goods and services you can buy with your salary locally.

Let's put the world's average salary - in PPP dollars - of \$1,480 a month, or almost \$18,000 a year, in context:

• It is less than half the average salary of the UK and the United States, where average monthly earnings are just over \$3,000 a month, or around \$37,000 a year
• It is twice the average salary of Bulgaria, and the same as the average salary in Poland
• The country at the bottom of the average earnings league is Tajikistan, where the average wage is about \$2,700 a year - while the country out on top is Luxembourg with average earnings of around \$48,000 a year

You might think that \$1,480 a month, or \$18,000 a year, is quite high. It comes to \$75 a day for a 20-day working month - but it's well known thatmore than a third of the world's population lives on less than \$2 a day. How can these two views of global incomes add up?

In truth, the economists at the ILO have had to rely on very patchy statistics. Data is missing for some countries - even a country as large as Nigeria, for example. And also, the economists at the ILO are only counting wage earners.

They exclude huge numbers of people who appear in the poverty statistics but not in the calculations for the average wage - pensioners, children and stay-at-home parents, for example, and even the self-employed.

The number of self-employed is huge. In developed countries about 90% of working people are paid employees, but that figure is lower in many developing countries. For example, in South Asia, where many people are self employed or independent farmers, just 25% of workers are salaried.

But calculating the world's average salary is still an exercise worth doing, according to Belser.

"It certainly tells you something about the state of worldwide economic development, I would say. We always use Gross Domestic Product (GDP) as the reference, but I think we also have a whole lot of trouble understanding exactly what is the meaning of GDP, whereas wages are a much more obvious indicator of the quality of life.

"It tells you something about the quality of life of the middle classes. It tells you where most of the people are at the end of the month, and it gives you an idea of how they live - how often they can go out, what they can buy, where they can live, what kinds of rents they can afford. And that's the interesting thing, compared to GDP per capita, which is a much more abstract notion."

And if you understand the limitations of this number - that it gives a rough idea of average employee salaries - Belser says it holds an important lesson.

"What it shows, also, is that the average salary is still pretty low," he says. "And so, that the worldwide level of economic development is in fact still pretty low, in spite of the huge affluence that we see in some places."