GREAT BAY--The World Bank’s placement of St. Maarten in its high-income economy grouping was somewhat odd to the public and, as expected, it resulted in some misinterpretations, which is a response the World Bank is quite used to in every country where it issues this distinction. Mainly because some people are interpreting the classification as a statement about their personal salaries.
It is not.
The World Bank is not saying that most residents earn high incomes. It is not saying that the average worker is wealthy, that minimum wage is sufficient, or that residents are financially comfortable. The classification refers to the size of St. Maarten’s overall economy in relation to its population.
Economy does not mean salary
The most important distinction is between the income of an economy and the income of an individual person. The World Bank uses a measurement known as Gross National Income per capita, or GNI per capita. In simple terms, it looks at the total income connected to the country’s residents and divides that amount by the population. That produces an economy-wide figure.
It is not the amount received by every resident, and it is not necessarily the amount earned by the typical worker. The calculation includes more than employee wages. It can also include income generated through businesses, self-employment, investments, property and other economic activity. This means a country can be classified as high income even when many workers earn far less than the national figure.
An average does not show what most people earn
Consider a simple example involving 10 people. Suppose nine people each earn US $20,000 per year, while one person earns US $220,000. Together, they earn US $400,000. Dividing that total by 10 gives an average of US $40,000 per person. However, nine of the 10 people still earn only US $20,000. The average is mathematically correct, but it does not describe the experience of most people in the group.
St. Maarten’s economy is much more complicated than that example, but the principle is the same. Higher incomes, business profits and other forms of economic activity can raise the national average even when many households earn considerably less.
High-income economy does not mean everyone is rich
The World Bank divides economies into four broad income categories: Low income, lower-middle income, upper-middle income and high income. St. Maarten has been placed in the highest of those four groupings. That does not mean St. Maarten has the highest income in the world. It means the country’s estimated national income per person is above the level the World Bank uses for its high-income category. The classification applies to the economy as a whole, not to each person living in the country.
Cost of living is a separate issue
The World Bank’s income grouping does not determine whether residents can afford rent, groceries, electricity, transportation, insurance or medical expenses. It also does not determine whether minimum wage is a livable wage. A person may earn more in St. Maarten than a worker in a lower-income country, but that does not automatically mean the person enjoys a better standard of living. The cost of basic necessities may also be much higher.
Someone earning US $2,000 per month in a place with high rent, expensive food and costly utilities may have less disposable income than someone earning less in a country where basic expenses are much lower. This is why income figures and cost-of-living figures must be examined separately. The World Bank classification does not measure how much money residents have left after paying their bills.
It does not measure income inequality
Another important limitation is that the classification does not show how income is divided among the population. A country may generate a large amount of income, but that income may be unevenly distributed. Some residents may earn very high salaries or receive substantial business and investment income, while a much larger group earns minimum wage or slightly above it. Both realities can exist in the same economy.
The World Bank classification alone cannot tell the public:
• How much the lowest-paid workers earn;
• How much the wealthiest residents receive;
• What the median household earns;
• How many people are living in poverty;
• How many households are struggling with rent;
• Or how much income remains after essential expenses.
Those questions require separate statistics.
Median income would tell a different story
Many people assume the World Bank figure represents the income of the average resident. Others may believe it represents median income. Median income is different. The median is the income level in the middle of the population. Half of the population earns more than that amount, and half earns less.
Median income is often more useful when trying to understand what a typical worker or household earns because it is less affected by a small number of very high incomes. The World Bank’s economy classification is not based on median income. It is based on national income divided by population.
The classification does not deny hardship
St. Maarten can be classified as a high-income economy while residents continue to struggle financially. The country can have a productive tourism industry, valuable property, successful businesses and substantial economic activity, while also having low-paid workers, expensive housing and households living from one pay period to the next. Those facts do not automatically contradict each other.
The World Bank classification answers a broad economic question: How much income is associated with the economy compared with the size of the population? It does not answer the household question: Can the average resident afford a reasonable standard of living?
The more important discussion
The proper response to the classification is not that the World Bank believes every resident is wealthy. It does not. The more important question is why an economy classified as high income does not produce greater financial security for a larger share of the population. That discussion should include wages, housing costs, poverty, taxation, business ownership, household income, access to mortgages and the distribution of economic opportunity.
A high-income classification can be viewed as evidence that St. Maarten and Saint Martin generates considerable economic value. The public-policy question is how much of that value reaches ordinary households. To properly understand the condition of residents, St. Maarten would need reliable and regularly updated information on median income, household expenses, poverty levels, wage distribution, housing affordability and disposable income.
The World Bank’s classification is not saying that everyone in St. Maarten is rich. It is saying that St. Maarten is a high-income economy. Whether the people living in that economy are benefiting fairly and sufficiently is a separate question, and it is the question that deserves the most attention.
