Employee compensation varies between and within industries, making it difficult for workers, employers and economic analysts to understand the value of labor. Two ways of measuring salary statistics are weighted salaries and unweighted salary averages. Although they come from some of the same basic data, each statistic is useful under the right conditions.
Difference
The difference between a weighted salary and an unweighted salary is whether the statistic accounts for the number of workers who earn a salary at each given level. An unweighted salary average relies on data from employers about how much they pay for certain positions. A weighted salary starts with the same information but factors in the number of workers who earn that salary at each business, resulting in a different average.
Computations
An example of the difference between weighted and unweighted salaries would be a survey of the salaries for first year managers at three different manufacturing plants in a single city. If company A pays its managers $100,000, company B pays $120,000 and company C pays $140,000, the unweighted salary average is $120,000, as the mean average of the three figures. However, if companies A and B each employ two managers at their respective salaries, while company C employs five managers, the weighted average is $126,667, accounting for the fact that more workers earn the higher salary.
Uses
The utility of salary averages, and which type of average is most meaningful, depends on the perspective in question. Questions dealing with workers and what they earn tend to focus on weighted salary averages. This is because employers who pay more workers a given salary also represent more job opportunities. When the question focuses on what employers pay for labor, unweighted salaries have added value. In many cases analysts examine both types of salary averages to plot trends in compensation over time or from one region to another.
Considerations
Both weighted and unweighted salary statistics are averages, which itself limits their usefulness in analysis. Another way to measure salary differentials is by use of medians, which are the middle points between the highest and lowest salaries for a given position, regardless of the distribution of workers throughout the spectrum. Arithmetic modes are also useful in some cases. A mode is the most common salary, or salary range. Workers choosing to enter a field, for example, may use modes to understand their most likely salary.
Tags: salary averages, unweighted salary, company pays, workers earn, averages which
