Beyond the Average Wage
The real picture of wages in Armenia: one country, two different economies
In the heart of Yerevan, in newly built office buildings, the companies of Armenia’s developing IT sector and financial system are located, where the salaries of young professionals are not inferior to those in Western Europe. However, the picture is different just a few tens of kilometers away in the rural areas of the country, as well as in the educational and agricultural sectors. The regional population barely earns enough money to meet basic needs. This striking contrast is not just a random example; this is the reality of Armenia’s increasingly polarized economy, as this analysis of wages shows. Chart 1.
The numbers tell a remarkable story. Since 2018, the real wages of high-earning workers (the top 10 percent) have grown by an impressive 70.6%. At the same time, those at the bottom of the economic ladder (the bottom 10 percent) have recorded a modest 14.5% growth. At first glance, it might seem that overall growth is good news. However, a deeper examination reveals a more complex picture. Armenia’s capital is not only the political and cultural center of the country, but it has also turned into an economic giant, leaving the rest of the country in the shadows. A staggering 80% of the national wage fund is concentrated in Yerevan. The city attracts high-paying jobs like a magnet, especially in the finance and IT sectors, transforming the country’s economy. Let’s understand what this means for the average Armenian worker.
Chart 2.
The arithmetic mean and the median: a lesson in economic realities. As of August 2024, the average wage in Armenia is 282,568 AMD. Sounds impressive, right? But the reality becomes more interesting. The median wage is a much better indicator here, showing what a typical Armenian earns, and it is significantly lower at 223,000 AMD. The actual median wage is 21% lower than the country’s average.
To understand why this matters, let’s play a little game. Imagine an economy where only five people work, and they earn 1, 2, 3, 4, and 10 AMD respectively. The average wage (the arithmetic mean) would be 4 AMD. But does this actually represent what most people earn? Of course not. The median, the middle value, which is 3 AMD, gives us a much clearer picture of the reality of the average worker. The point is that disproportionately high wages pull the value of the arithmetic mean towards themselves. Simply put, if you want to know the “average wage”, look at the arithmetic mean. But if you want to understand the “average worker’s wage”, then the median is your most appropriate indicator.
Now let’s add taxes. After paying taxes, the median wage of 223,000 AMD decreases to 161,750 AMD. The average wage after taxes reaches 206,426 AMD. But perhaps the most shocking statistic is that 25% of Armenian workers earn less than 175,000 AMD (before tax), which means that their take-home pay is only 128,250 AMD. Note that the wages of registered workers have been observed. This analysis does not take into account the total net incomes that may be generated from other unregistered activities. If you want to know how much the real income of households in Armenia is, read the following research: 🏠💰📉 Households Have Become Poorer.
Chart 3.
When we factor in inflation, the picture becomes even more complicated. Chart 3 reveals a harsh truth: for low-income groups, real wages have remained almost unchanged. In other words, while their nominal wages may have increased, their purchasing power has not changed. Chart 4.
Our analysis also explores how the distribution of wages has changed over time. Although there is a gradual shift towards higher wage groups, the gap between the highest and lowest earners remains obvious. It should be taken into account that, unlike the previous charts, the 4th and 5th charts were calculated using a methodology that may not fully reflect the real picture (see the methodology section). Chart 5.
In our previous analysis 💹💳🧑🏭 we proposed a bold strategy to overcome this growing gap. Let’s present a brief overview: International investors are always looking for tax privileges, and this could be Armenia’s advantage in managing capital inflows. We propose introducing targeted tax privileges to stimulate regional development, activate industrial activity, and create jobs outside of Yerevan. Our proposal is that in regions where private sector jobs are less than half of public sector jobs, preferential income tax rates of 0-10% (depending on the type of production) and profit tax privileges for industrial organizations should be offered. This incentive will operate until private sector jobs in the given region exceed public sector jobs by two times. Read more: 💹💳🧑🏭 Almost 80 Percent of Private Jobs Are in Yerevan.
Yerevan and the Kotayk region, where private sector jobs already predominate, will not receive tax privileges. In Syunik and Ararat, where the ratio of private and public jobs is approaching the target figure, the incentives may work for only one or two years. However, in less developed regions such as Tavush, Shirak, Aragatsotn, and Gegharkunik, where public sector jobs still exceed private ones, these incentives can bring real change. 80% of the wage fund is already in Yerevan, meaning this initiative will not lead to tax losses. This initiative could actually expand the tax base by encouraging businesses operating in the shadow economy to come out of the shadows.
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Methodology
Attention: This section contains technical details and can be skipped by non-specialist readers.
Data Sources and Processing
- Main data source: Statistical Committee of the Republic of Armenia
- Data cleaning and standardization were carried out; the cleaned database is available at the following address: Github of tvyal.com
Analytical Approaches
- Weighted Quantiles
- Used for calculating median, Q1, Q3, and other percentile values
- Used in Charts 1, 2, and 3
- Provides the most reliable representation of the actual distribution of data
- Weighted Mean and Standard Deviation
- A lognormal distribution of wages was assumed
- Applied in Charts 4 and 5
- Note: This approach may not perfectly match the actual distribution of the data and should be interpreted with caution
Inflation Adjustment
- Charts 1, 3, and 5 are adjusted for cumulative inflation to make comparisons of different time periods possible
Limitations
- The analysis is based only on officially registered wages; it does not take into account the shadow economy or those with more than one job
- The lognormal distribution assumption in Charts 4 and 5 may not reflect the actual distribution of wages
- For more accurate estimates, further refinement of the statistical models may be necessary
Legal Clarification of the Previous Material
‼️ We always strive to ensure that the works we publish are as objective and apolitical as possible, which is not always successful. Truth and accuracy are at the core of Tvyal.com’s values. When publishing the previous material "📢✊🕊️ Velvet Commotion and Organizational Change", there is an absence of an important fact that was not available to us at the time of writing the material. In December 2016, the organizational-legal form of “union of legal entities” (ULE) was abolished. It was established that all such organizations must re-register as a non-governmental organization (NGO) within one year (until the end of 2017). This fact partially, but not entirely, explains the strange growth of NGOs at the end of 2017. It is important to note that until the end of 2017, there were 347 ULEs registered in Armenia, which is significantly smaller than the number of 737 NGOs registered in November-December 2017. This requires further additional research, which will also include the complete series of registered organizations since the formation of the third republic of Armenia. The details have been added to the end of that material.