The CGD Podcast – "Median Income as a Better Measure of Development Progress"

Guests: Nancy Birdsall & Christian Meyer
Host: Lawrence MacDonald | Date: February 10, 2014

Episode Overview

This episode explores why median income matters as a measure of development progress, contrasting it with traditional metrics like average (mean) GDP per capita and absolute poverty rates. Nancy Birdsall and Christian Meyer discuss the implications of focusing on the median, how it relates to inequality and policy goals, and why it might provide a more accurate picture of well-being for most people in developing countries. The conversation touches on measurement challenges, global policy frameworks, and cultural perspectives on inequality.

Key Discussion Points & Insights

1. Why Focus on the Median? [00:35–02:51]

• Nancy Birdsall’s motivation:
  • Previous work on defining the middle class in developing countries revealed how low the median income is; the "middle class" by Western standards is much smaller or even absent.
  • Realized that “half of developing country population are at $3 a day—still poor by any reasonable definition.” [02:33–02:51]
• Average vs. Median:
  • Traditional focus has been on mean GDP because that data was readily available (“where the light was shining”) through national accounts. [03:56]
  • With new household survey data, assessing the full distribution and finding the median is now feasible. [04:54]
  • Median reflects what a typical person experiences, not what outliers (very rich) do.

2. Defining the Median [02:51–03:45]

• Christian Meyer explains:
  • “If you line up 10 incomes from lowest to highest, the median would be the middle number... The median is a better measure of the typical income of a distribution.” [02:57–03:24]

3. Implications of Using the Median [05:29–06:13]

• Median wage and household income in the US have barely increased in the last decade, despite average gains largely due to more members per household working. [05:29]
• Monitoring the median reveals stagnation that averages might obscure.

4. What Should Policymakers Do? [06:13–08:14]

• Christian: Advocates for including the median as a standard indicator in global development databases—“giving a... distribution aware measure.” [06:13–07:15]
• Median income offers a simple gauge of inequality; when mean is much higher than median, inequality is likely significant.

5. Relevance to Global Development Goals [07:15–09:26]

• Nancy: Median-based targets could sidestep political sensitivity around “inequality” by focusing on shared progress. “Allows countries to set up that kind of goal without facing the kind of pushback around having…inequality as an outcome.” [08:26]

6. Striking Examples: Comparing Countries [09:26–10:51]

• China vs. Cameroon:
  • Both have similar median daily consumption (~$3.25), but China’s mean income is 3.5x higher—revealing high inequality and unbalanced development. “That’s the point...there must be a very substantial group of people who have a lot of income…and a much larger group…really very poor.” [10:11]

7. Cultural Perspectives on Inequality [10:51–13:22]

• Christian (German perspective):
  • Inequality is rising in Europe too, contrary to stereotypes.
  • “Maybe as a European… I personally have a lower acceptance rate of inequality.” [11:39]
• Nancy:
  • Main difference between US and Germany comes from stronger safety nets and progressive taxation in Europe, not just willingness to redistribute. “90% of the difference in total inequality…associated with…a bigger and richer safety net.” [12:45–13:22]

8. Commitment to Equity: The Role of Fiscal Policy [15:52–18:20]

• Nora Lustig’s Commitment to Equity Index:
  • Measures how fiscal policy (taxes and transfers) shifts people among income groups.
  • For example, poor can sometimes become poorer due to regressive tax structures or poorly targeted subsidies (e.g. for fuel in Venezuela). [17:14–17:52]
  • Challenge: Complexities and comparability across countries.

9. Challenges of “Perceived” vs. “Actual” Benefits [19:07–20:03]

• Opt-out issue: Even free public education may have little value if middle-class families opt for private schools. “Is the value of that public education what was spent…and intended beneficiaries attribute…might be zero?” [19:34]

10. The World Bank’s Shared Prosperity Indicator [20:03–24:45]

• Tracking income of the bottom 40% as an equity focus.
• Christian: Median is simpler, “tracks the income of the bottom 40% pretty well,” and would be easier to standardize. [21:04]
• Nancy’s critique:
  • Focusing on the bottom 40% ignores the dynamics at the very top and the arithmetic of growth: “The richer you are, the more a particular rate of growth increases your absolute income.” [23:21]
  • Raises issue of social consequences—relative gains, politics, influence.

Notable Quotes & Memorable Moments

• “[T]o be at $3 a day, which is where half of developing country population are, is indeed still to be poor by any reasonable definition.” – Nancy Birdsall [02:35]
• “The median is basically a simple statistic...the way that most income distributions are...the median is a better measure of the typical income of a distribution.” – Christian Meyer [02:57]
• “The median wage has barely increased in the last 10 or 15 years.” – Nancy Birdsall, on the US [05:29]
• “If we have a measure like the median...it’s providing what we call distribution-aware measure.” – Christian Meyer [06:13]
• “It allows countries to set up that kind of goal without facing...pushback around having...inequality as an outcome.” – Nancy Birdsall [08:26]
• “Both [China and Cameroon] have median daily consumption... around $3.25. But China’s [mean income] is about three and a half times higher.” – Nancy Birdsall [09:51–10:11]
• “Personally, I think...as a German...I maybe have a personally lower acceptance rate of inequality.” – Christian Meyer [11:39]
• “90%...of the difference in total inequality...is associated with the fact that in Germany there’s a...richer safety net...” – Nancy Birdsall [12:45]
• “The richer you are, the more a particular rate of growth increases your absolute income.” – Nancy Birdsall [23:21]

Timestamps for Key Segments

• [00:16–00:35]: Introduction of guests and topic
• [00:35–02:51]: Origins of interest in the median; why existing measures can be misleading
• [02:51–03:45]: Explaining the median vs. mean
• [03:56–04:54]: Historical focus on mean and new median possibilities
• [05:29–06:13]: Real-world effects of measuring median income
• [07:15–08:26]: Policy implications; how median can address sensitivity on inequality
• [09:26–10:51]: Case study: China vs. Cameroon
• [10:51–13:22]: European vs. American approaches to inequality
• [15:52–18:20]: Commitment to Equity Index and fiscal redistribution
• [20:03–24:45]: World Bank’s Shared Prosperity index versus using the median
• [23:21–24:24]: Limitations and consequences of focusing on the bottom 40%

Final Thoughts

While the technicalities of various metrics may seem dry, the episode demonstrates why “what gets measured gets done.” The shift from average to median income as a standard could realign policies toward genuine shared prosperity—making development progress more about real improvements for the majority, not just statistical illusions driven by the wealthy few.

For more detail, listeners are encouraged to consult the Birdsall & Meyer paper “Median is the Message,” or visit CGD’s website for related resources.