## Wednesday, 1 January 2014

### Percentage v Percentage Points

The term "percentage point" is used to get around an ambiguity in English when we are comparing two different percentages. The problem is that "percent" implicitly refers to a relative change (some fraction of an original amount, like a salary increase of 10%) rather than an absolute change (some specified amount, like a salary increase of \$1000). What do we say when we want to treat a percentage as an absolute amount?

If, for example, the current tax rate were 10% and we increased it to 12%, we might say that we increased it by 2 percent. But that would be taken to mean that we increased it by 2% of the original 10% (that is, by 2/100 of 10%, or 0.2%), to 10.2%. The question is, are we using "percent" to mean one of the units called percent, or a percentage of that percentage? To avoid this problem, we say instead that we are increasing the tax rate by "two percentage points". This unambiguously refers to the number 2% itself as a unit, rather than to 2% of something else.