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My Wealth Absolute and Relative Income

Posted Jun 2009

What is the difference between relative and absolute income? What are additional incomes and what is the big picture?

Work is the process of exchange of skill, time and effort for the money. This is very well clear for everybody who trades the work for the money. Every person can have different levels of knowledge, education, experience, personal traits, energy and enthusiasm for the work. According to these inputs comes the expected output – the money that represents the compensation for the done job.

But there is the question about who earns more or who has a better-paid job? Is that the person that earns more? Or is that the person who works less? These questions cannot be understood unless we evaluate their relation.

In first place comes the level of income as a measure how well paid the job is. This is called absolute income. If Mary monthly earns $2.600 and Jane earns $3.000, it is obvious that Jane earns more and has a better paid job. Jane's Absolute income is higher than Mary's.

But if the Mary works 40 hours per week and Jane is working 50 hours per week, it appear that Mary is earning more per hour. Mary is earning $16,5 while Jane is earning $15. This means that Mary's Relative income is higher than Jane's.

Who earns more or who has a better-paid job? Is that the person that earns more? Or is that the person who works less?

It is important to distinguish Absolute and Relative income when valuating two different jobs. Still, this is not the end of the story. A fee of 50$ for one hour of work can represent high relative income. But if the monthly number of such engagements is low, than high relative income with low engagements cannot give satisfying overall salary.

Further more while comparing relative and absolute income, it is necessary to evaluate other benefits: company's mobile phone or a car, bonus, stocks, vacation days and other extras. Evaluation a whole package from all aspects can show a real picture how well are we paid. This evaluation can give us input information for understanding the employment conditions. Having in mind all these aspects you can answer to two important questions: Am I paid enough for work I do? Am I working too much for money I earn?


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