June 10, 2023
The average salary in the US is higher than in the UK, but it’s important not to read too much into this. Just because US workers typically earn more, this doesn’t mean that they have more money to spend. There are many factors that determine the disposable income that employees have at the end of the money, including healthcare, taxation and other deductions.
There is a good reason why employee salaries vary between the two countries. In this guide, we’ll explore why there are differences and what these differences mean for employees.
The average salary in the US was around $58,260 in 2021. In the UK, the average salary was around $38,291 when converted to dollars. This might feel like a drastic difference between two countries that are economically similar, but there are some considerations to think about.
Comparing salaries between countries like-for-like is problematic, because it doesn’t give you a complete picture. The take-home salary, for example, will be vastly different because of the different tax systems. There are also extra perks to consider.
For example, in the UK, all full-time workers are entitled to 28 days’ paid annual leave per year. In the US, there is no minimum amount, so it’s down to individual companies to decide in line with state law. Around 77% of private companies offer 8 days of paid annual leave per year, on average.
UK salaries are low across all demographics for a few key reasons. The UK has more protections for employees than in the US, and this is paid for in the form of better social welfare. As a result, employers can offer lower wages as they can be confident their workers will be able to afford the cost of living.
The main differences between UK and US salaries come down to the following factors:
Let’s look at each of these factors in more detail:
In the UK, pensions are mandatory, whereas they are optional in the US. In the UK, employees contribute a portion of their income towards their pension and then their employer matches this contribution. In the US, employers can set up their own pension funds, but it isn’t something that their employer is compelled to offer.
Since healthcare in the US is not free, this is factored into US salaries. In the UK, everyone can access the National Health Service for free. Workers in the US will have to pay for health insurance, so employers need to offer higher wages to enable them to afford this.
By offering a national health service that is funded by taxes, employers may earn less, but this ensures that everyone has access to basic healthcare.
As mentioned above, UK workers have access to more paid time off per year. They also get sick pay and income protection. So, while they might earn less than counterparts in the US, they also get the chance to rest and recharge, which can be an invaluable benefit.
While this is also a problem in the UK, income disparity across the population is a far bigger problem in the US. This means that average incomes are skewed by very high and very low salaries.
While similar, the cost of living in the US is slightly more expensive than in the UK. Factors such as student loan repayments will have a big impact on a graduate’s disposable income in the UK versus the US.
Income disparity is the gap between the biggest and the smallest earners. While it is a problem in both countries, it is more prevalent in the US.
In 2020, the richest 5% of people earned 23% of all income in the US, while the bottom 20% made just 3% of all income.
In the UK, 42% of all income went to the top earners, while 7% went to the bottom earners. Things like location, education, social demographics and taxation will all have an impact on income disparity.
The highest paying industries vary by each country. This will have a significant impact on average earnings.
In the US, the top paying industries are:
While in the UK, the top paying industries are:
While there are some similarities, subsidisation within the healthcare sector means that these workers are paid less. However, perks of the role and job security are thought to make up for these lower wages. Having a national health service means that all healthcare professionals are paid the same for their work, so there are only regional differences to account for places with a higher cost of living.
While salaries might be more inflated in the US, it’s important not to draw any conclusions from this. The real-world take home pay of workers in the UK and the US is likely to be the same for similar work.
While there are some opportunities that pay more in each territory, like-for-like comparisons are unlikely to reveal anything other than a different societal structure. The key takeaway you need to know is: