ELI5:Why does the median household in Mexico make 30x as much money as a median Cuban household, when Cuba’s per capita GDP is 1/3rd higher than Mexico’s?
ELI5:Why does the median household in Mexico make 30x as much money as a median Cuban household, when Cuba’s per capita GDP is 1/3rd higher than Mexico’s?
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Because of how medians work compared to GDP. In Cuba the people at the top make a lot more of the share than in mexico comparatively.
If me, 8 friends, and bezos are in a room the median income maybe only 50k, but our gdp is going to be better than 10 regular tech bros from silicon valley.
is part of this reporting? the official exchange rate is 24 CUP to 1 USD, the real exchange rate (https://devtechsys.com/projects/the-actual-cuban-exchange-rate-dashboard/) is 340 CUP to 1 USD, so 14x difference. Not sure if this captures anything
Median vs. per capita (average). A country of 10 people who each make $100k have a GDP of $1M, and a median income of $100k. A country of 4 slaveowners and 6 slaves that produce $1M total has a per capita income of $100k and a median income of $0.
GDP is a metric with several limitations.
If we declare a new “high five economy” where you charge 5$ per high fives, each high five would generate 10$ worth of GDP while not seeing money exchange hand and creating 0$ worth of value.
It’s a question of average vs median.
The average is just the sum of all of the people’s income divided by the number of people.
The median is taking every person, ordering them from lowest to highest income and then getting the value that is exactly in the middle.
So for example if we had 10 people with these values. 1,3,3,3,3,3,9,9,9,9 well the average would be (1+3+3+3+3+3+9+9+9+9)/10 = 5.2 but the mean is 3 because the middle number in this case the 5th number is 3. (Edit: i meant median not mean)
The problem is that if you have huge numbers like for example instead lets make a list like this (10$)(15$)(16$)(20$)(200000$) we have 5 items but one of them is huge. So the average would be (10 +15+16+20+200000)/5 = 40,012.2$ as you can see it would not be ok to say that the average person has 40,000$ its skewed too much, but the median would be 16$ so it is a more reasonable number to use.
Basically averages can be skewed if there are numbers that are too big or too small in comparison to the majority.
And the median is basically 50% of the population makes more than this number and 50% makes less. It’s the very middle number from any list.
Beyond just the median vs average point others have made, the other issue is that you’re comparing two different economic systems. Mexico is a capitalist economy and Cuba is Communist.
In your statement, you are looking at Cuba as if it is a capitalist society where the majority of GDP is privately created and mainly flow into the hands of citizens. That is not true in Cuba, where the majority of GDP is created and received by the government, and flows to government coffers, and then trickles to citizens in the form of social programs. So, even though Cuba might generate a lot of GDP, less of it flows to the average citizen – hence a lower median income.
One thing to consider is where the proceeds of that GDP is being spent. Salary isn’t the only place where money goes back into the community. Residents also benefit from services provided by the government. If a company produces $100 worth of goods, pays their employee $60 of it and the remaining $40 is paid to the government as an excise tax, to be spent on education, roads, and social support that’s functionally equivalent to a company paying their employees $100 of it at the end of the day. I would speculate that in a country like Cuba where the government has their hands in everything that would play a pretty big role when comparing salary to a country like Mexico that has relatively fewer government services. Cuba has a lot of taxes and the government plays a much bigger role in, well, pretty much everything.
In short, household income isn’t a true measure of prosperity. You can see this discrepancies in a lot of countries, a citizen of a European country might make less, on paper, than an American but in reality the total benefit they’re receiving is higher.
Because each house in Mexico holds 40x the people of a Cuban house.
Hey there! It’s like this: imagine two pizzas. Cuba might have more slices per person, but Mexico gets to enjoy each slice 30 times over for some reason. It’s a bit like how having a bigger pizza doesn’t always mean everyone gets enough to fill them up—sometimes it’s about how those slices are shared out! Hope that clears things up a bit for you!
GDP per capita PPP is closer to 3x not 30x. you have to adjust for cost of living, which is significantly lower in Cuba.
due to the more open economy of Mexico, they also have 2-3x per capita of remittance inflow (Mexicans abroad sending money back) and FDI inflows. exports per capita is 6x. a lot more purchasing power in hand for the median or average Mexican.
Labor productivity is also 2-3x higher in Mexico, measured in GDP per hour worked. that’s a diversified mixed market economy for you, versus a centrally planned one like Cuba’s. you can imagine a ton of underutilized educated Cubans inefficiently forced to, say, make sugar instead of more valuable things for exports.