Why Are UK Salaries So Low Compared To the US?

The UK pays lower salaries than the US, that’s a fact, but have you ever wondered why? Well, one of the most surprising reasons is the high level of taxation in the UK.

Income tax and national insurance contributions (NICs) take a large chunk out of people’s salaries in the UK, while social security taxes are also relatively high. This means that workers in the UK have less disposable income than their counterparts in the US.

Salaries in the UK are significantly lower than in the US. At the same time, the cost of living and taxes in the UK are higher compared to the US. Besides, the economy and the job market aren’t as strong as in the US. While the British enjoy subsidized social benefits, such as free healthcare, it’s a burden to most Americans, creating a salary disparity.

The UK and the US attract migrants each year in search of career development. This article navigates the various reasons why salaries in the US are so much higher than in the UK. It will look at such factors as the cost of living, taxes, social services, and productivity. Read more about European vs US salaries.

Why are UK salaries lower than the US?

The social welfare landscape in Europe is slightly different compared to the US employee benefits. Generally, the UK has an enhanced social safety net and good regulations around employee protection compared to the US.

Anecdotally, the difference could be due to a combination of factors, including pension, vacation, and healthcare benefits.

1. Pension benefits

Pensions are a mandatory benefit In the UK and are subject to legislation. Employers are expected to contribute at least 3% of the 8% required minimum contribution level. Contrary, the US offers options where an individual can determine and finance their pension plan and save accordingly.

2. Healthcare

Healthcare is covered in both countries, but the National Health Service (NHS), allows its citizens to access free healthcare services in the UK. However, healthcare in the US is expensive to the employees but more accessible than the UK’s free plan. Read more about British healthcare and why it’s free.

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3. Holiday benefits

The US offers fewer vacation days than the UK. For instance, a person working five days a week is legally entitled to 28 days of paid annual leave. In contrast, the same person has only 21 vacation days per annum in the US. UK holidays are many, making the free days slightly higher than in the US.

Other social welfare benefits in the UK, such as income protection, sick pay, and employee perks, add to the greater salary difference as the UK employer caters to most of these mandatory benefits. The social welfare environment in the UK is significant and highly subsidized compared to the US.

4. Income disparity

The US has a more significant income disparity than the UK or any other European country, for that matter.

In fact:

  • about 34,1% of Americans earn over $100,000
  • 15,5% of the population makes between $100,000 and $149,999
  • 8,3% of Americans makes between $150,000 and $199,999
  • 10,3% of the US population has an annual salary over $200,000 

5. Difference in cost of living

The cost of living in the UK is relatively higher than in most US states except for New York City. Yet, salaries are lower.

According to figures by Numbeo, a site devoted to sharing data on the global cost of living, with a $4,700 monthly income, you can finance a modest lifestyle in London UK’s capital. At the same time, you require approximately $5,822 for an equivalent lifestyle in New York City.

The figure accounts for a one-bedroom apartment in London is approximately $2,328. Contrary, to afford the same luxury apartment, you’re charged a rent of $3,173 – a 9.12% difference in rent with the US on the upper edge. Of course, both cities are infamously expensive.

Facts about the cost of living in the UK and US:

  • Gasoline in the UK costs $6.27 per gallon, while the same quantity costs $3 as of February 2021.
  • Private schools are cheaper in London than in New York— 26.54% lower.
  • Internet costs in New York are approximately 55% higher than in London.

Notably, the difference in cost of living varies according to various states in the US. For instance, the UK is expensive compared to Florida but significantly cheaper than New York.

Furthermore, it’s easy to sustain a comfortable life in California with an annual income of $100,000, while to maintain the same lifestyle in NY, you need $150,000 per year. You require at least $130,000 per year for the same luxury in London.  

The tax burden plays a significant role in a worker’s take-home pay. Although both UK and US tax regimes are progressive, London residents pay significantly higher taxes and social security contributions than New York residents.

The difference is notable even in multinational companies. For example, a Google employee in London will earn approximately 25% lower net income than an employee in the US with the same job title and role. Read more about salaries in London.

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How big is the difference in salaries?

There are some clear trends in the difference between British and American salaries. Generally, there are three job categories in both countries. 

1. Highly skilled, high-level professionals, e.g., consulting, finance, banking, IT, technology

In this job category, the difference in salaries that you get in the UK vs the US is very significant. Ultimately, high-profile executives will reap better rewards in the US. Your salary can grow rapidly and yearly performance bonuses add a significant amount to the total earnings.

An employee might even get 3–5 times more in the US than in the UK. For example, a regular salary for a developer in a British city would be $60k. In Silicon Valley, it can easily be $150k. 

In the US, tech or finance companies have higher profit margins and are often backed by investors. Therefore, they can afford higher salaries. 

Plus, the cost of living in the location where they have offices are usually high, so they need to keep up with the standards.

2. Other highly skilled jobs (e.g. engineering)

In this category, the salary can be similar in the UK. Everything will depend on the location, size of the company, and the applicant.

3. Middle to low skilled jobs – casual workers

Here, salaries also don’t differ significantly. Skilled trade professionals and unskilled casual workers get the same compensation in the UK and in the US.

Average salary in the US vs. the UK

Average salaries in the US stand at $83,886 per annum in 2022, while it’s $4,154 per month after tax in the UK. States within the European Union earn almost equally since the economy is regulated, while in the US, salaries are competitive, and most people earn above average. 

Adult minimum jobs in the UK pay an hourly rate of $11.94 (£9,50), excluding bonuses, while it’s $7.25 an hour in the US. Salaries vary in the US; wages are skewed towards the educated, leaving the minimum wage low for the less educated and unskilled workers.

US Statistics

In 2020, the national average wage in the US, according to the Bureau of Labor Statistics (BLS), was $83,886 per annum. The median annual income of all full-time workers in the US was $51,480 in the second quarter of 2021. A good wage ranges between $5,800 – $6,500 monthly income before tax, applicable to all states.

That average wage earns you a decent standard of living, such as a good apartment within the city, a good car, and traveling in states across the US.

There is a large gap between salaries in the states. For example, a casual worker might earn only $25,000 and an executive in the financial industry – $150,000. 

https://russianvagabond.com/what-is-a-good-salary-in-the-us/

Therefore, income in the US is unevenly distributed among its population depending on factors such as:

1. Location

Location is a major factor when determining wages in the US, and different states offer different average wages.

A job in a large metropolitan area will earn you more than a job in a suburban area; for example, a $100,000 annual income gives you a comfortable living in mid-sized states such as Florida and Montana.

However, to live comfortably in a large city like New York or Los Angeles, decent pay sounds like $125,000 per annum.

2. Education level

Your education level determines the salary you receive in the US. Notably, a degree from a recognized university is a boost, especially for recent graduates. A certificate or Diploma earns you 17% higher than a high school level education, while a bachelor’s degree makes you 24% more than a Diploma holder.

Seemingly, having a master’s degree automatically gives you 29% increased earnings compared to a bachelor’s holder. In comparison, you earn 23% more than a Master’s holder as a Ph.D. holder—all while doing the same job description.

Skill levels highly contribute to the difference in earnings where low-skilled workers receive insignificantly low wages compared to highly skilled workers. Gender also plays a role in the differences where on average, men receive an annual salary of $94,279 while women receive $70,022 annual net pay.

How do salaries in the US compare to Germany? Read in this article.

https://russianvagabond.com/salaries-usa-vs-germany-where-will-you-make-more/

Facts about average salary in the US in 2022:

  1. The average salary in the United States is $82,412 USD per year. The most typical earning is $52,000 USD. All data are based on 20,675 salary surveys. 
  2. Salaries range from $24,000 (lowest average) to $423,000 (highest average)
  3. The best-paid careers are Engineers & Technicians V, with an average income of $124,524 USD and Management & Business with $110,097 USD.
  4. People with different experiences earn different salaries. Employees with 16-20 years of experience receive $98,926 USD. Professionals with 20+ years of experience receive a salary of $108,877 USD.

Professionals in management and business earn much more in the US than in the UK and many other developed countries. If you are willing to pursue a career, American companies can provide great opportunities and a very high income.

Why are salaries in the US so high?

You need to remember that the US doesn’t have an excellent social security system as the UK does. Healthcare isn’t free. The state won’t take care of everything. You even will need to take care of your retirement. 

Consequently, a person living in the US needs to have enough savings to provide for themselves in case of any difficult situation, such as: 

  • losing the job
  • health issues

Plus, education is costly in the US. Hence, parents must have enough money for their kids to go to a good school and university. 

UK Statistics

In the UK, the average monthly salary after tax was about $3,268 in 2021, according to Office of National Statistics (ONS). A decent net pay in the UK ranges between $3,400 – $4,076 monthly. A gross salary of $54,364 earns you a comfortable life in the UK, the location being a major factor.

In the UK, a full-time employee received $817 per week or $3,268 per month in 2021 on average. Furthermore, there was a 0.3% increase in the average wages in the UK in 2021.

The average net salary for part-time employees in the UK is $12,777 per annum, while full-time workers enjoy a net average wage of $39,216 annually—which is a 0.6% fall as of 2021 compared to 2020 stats.

Notably, men earn more than their female counterparts in the UK. For instance, a full-time male worker makes an average of $5,768 more which is 18% more than what their female colleagues earn per year. A female CEO earns $28,233 less than their male counterparts per annum.

According to Statista, top male earners in the UK are between 40 – 49 years with an average income of $51,544. Of course, this comes with an exceptional experience.

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Below is a table depicting gender disparity in salaries in the UK:

Source: ONS

Moreover, fresh graduates are the least earners in the UK as experience influences salary. Education level and job position also make a huge difference in income. For example, junior roles start from $20,332 to $36,145, while executive and managerial positions start from $39,533 to $55,352.

In Europe, generally, Switzerland, the UK, Iceland, Denmark, Norway, and Germany are recognized as countries with the highest salaries.

What jobs have higher salaries in the UK than in the US?

Senior finance roles

According to stats from Indeed, a global job site, the Chief financial officer (CFO) tops the ranks as the highest paid in the UK. CFOs manage a company’s finances and, as a result, bag an average salary of $147,846.

The finance and banking industry in the UK is highly paid, with an average of $99,602 a year for its senior employees. The value for the same worker and job title in the US ranks slightly lower at an average of $94,400 per annum.

Law

Top-paid careers in law include judges, corporate counsel, lawyers, and private practice lawyers. The average salary for such positions is $97,986 per year in the UK and slightly lower in the US at an average of $94,300 p.a.

Education and experience vastly influence the pay in these careers—most experienced and educated lawyers can earn up to $132,660 per year in the UK.

Insurance

The average salary for insurance personnel in the UK is $90,282—which covers general insurance, brokers, and underwriters.

This is higher than a worker in the US, who receives an average of $77,700 a year. Based on the level of education, the field can pay up to $143,560 for someone with a Ph.D. in the UK and $116,400 in the US.

Furthermore, men receive $93,700 a year, while women in the same category receive an average of $59,300 a year. The earnings are significantly affected by experience and skill level in both countries.

Healthcare and Medical

Medical specialists also ranked top ranging from orthodontists to Dermatologists, earning an average of $85,873 a year. Medical specialists are highly paid due to the nature of their job, i.e., making tough life-and-death decisions.

Seemingly, the high pay accounts for the many years of study, practice period, and specialization afterward—thus, high demand and high pay for the best talent.

Medics in the US get good pay, averaging $83,800 per annum, slightly lower than those from the UK. Medical specialists like surgeons, physicians, and gynecologists top the best-paid earning badge in the US.

Agriculture & Fishing

The agricultural industry is more paying in the UK, with an average salary of $76,825 per year. The same job in the US pays a worker an average of $61,100 a year.

Combined factors like age, experience, and education can add the value of a person’s earnings in this sector to about $ 144,848 per year in the UK and $111,200 in the US.

The table below shows top-paying jobs in the UK compared to the US  for selected careers.

Career/IndustryAVERAGE SALARY/YEAR- UKAVERAGE SALARY/YEAR- US
Finance & Banking$99,602$94,400
Law$97,986$94,300
Insurance$90,282$77,700
Health & Medical Care$85,873$83,800
Agriculture$76,825$61,100
Source: Average Salary Survey
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What jobs will bring you more in the US?

In the US, the best-paying jobs include positions in healthcare, information technology, management, finance, engineering, and law.

Some of the well-paying jobs in the US are:

Job titleGross median salary 2022
Physicians and SurgeonsEqual or more than $208
Obstetricians and gynecologistsEqual or more than $208k
General internal medicine physiciansEqual or more than $208k
AnesthesiologistsEqual or more than $208k
Chief executivesEqual or more than $185k
Finance managersEqual or more than $130k
Nurse anesthetistsEqual or more than $183k
Dentists, generalEqual or more than $158k
Airline pilots, copilots, and flight engineersEqual or more than $160k
Architectural and engineering managersEqual or more than $149k
Marketing managersEqual or more than $142k
Source: bls.gov

In which American city will you get paid the most?

Accordingly to the cost of living in the US, cities with the highest cost of living also have the highest salaries. Hence, residents of :

  • Washington
  • California
  • New York

have the highest median annual income, with Washington D.C. on top ($82,604).

Learn more about salaries in the US and the UK.

https://russianvagabond.com/what-is-a-good-salary-in-the-uk/

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