Prejudice Parades as Economics | by Dick Forslund and Jeff Rudin

by Jul 18, 2012All Articles

prejudice-parades-as-economicsWhilst the debate in South Africa rages over the poorest workers allegedly being over paid, ‘The Occupy Wall Street’ movement that is now being replicated throughout the world expresses growing outrage at the ‘one percent’ of people whose wealth allows them to dominate the world.  What would probably surprise and further outage the protesters is that the bankers and other corporate CEOs amongst these super rich ‘one percenters’ sometimes manage to masquerade as ordinary workers.  The magic used to achieve this feat gives a wholly new meaning to ‘lies, damned lies and statistics’.
Official GDP statistics in many countries, including South Africa, recognise only two kinds of income:  wages and profits.  Everyone working to a contact of employment – including the US hedge fund manager who made $4 billion (yes, billion!) in a single year – are listed as employees with their pay registered as wages in the national accounts.  The consequences of this statistical quirk are enormous.
One might expect the economists who are household names – because of the regularity with which the media defers to them as the ‘experts’ – to alert us to this peculiarity.  Worse than not telling us, however, is that they use this sleight of hand in order to promote their own far from neutral agenda.
We are being inundated by ‘research’ supposedly showing that South African workers are not only grossly overpaid (despite their officially recognised poverty wages) but that the excessive pay is responsible for the obscenity of our mass unemployment.
What they don’t say is that the ‘average’ pay they quote – R13,200 pr month – includes the pay of all managers and executives; also included are the earnings of all employers who pay themselves a salary and the self-employed (including lawyers who are ‘cheap’ at R40,000 per day).  These distortions, reflecting South Africa’s notorious inequality, are of such a magnitude as to make meaningless any ‘average’ wage.  If 5 out of 100 people earn R1000 and 95 earn R5, the average is R54.75.  This means that 95 out of the 100 people have had their wages artificially increased almost 11 times.  It’s magic.
Yet, this statistical socialism based on the premise of an equal sharing of wealth by everyone, has not stopped the business press from attacking real workers with lurid front-page headlines such as “Unskilled Workers ‘Paid Too Much’ In SA” (Business Day 7/5/12).
The ideological motivation behind such statistical tricks probably explains why many economists fail to correct the distortions created by South Africa’s gross inequality. Much of the information required for such a correction is available. This has not stopped the media from attacking real workers – as opposed to the fictional ones of ‘averages’ – for being the cause of so much of South Africa’s economic problems.
Section 27(1) of our Employment Equity Act 1997, for example, states that every employer (other than small ones) “must submit a statement…on the remuneration and benefits received in each occupational category and level of that of that employer’s workforce.”  The purpose of this 15-year-old section was to reduce income differentials because, even then, they were considered to be unacceptable (and a supposed consequence of apartheid’s racial exploitation).
Although the differentials have grown enormously since then, employers are still required to provide this information every year using a prescribed form (EEA4).  One may ask why the government keeps this most relevant information secret, for the data reveal the management income that is elsewhere concealed as wages.  But we should also note how ignoring this data helps economists (mis)use average so-called ‘wages’.
Statistics South Africa’s ‘The Monthly Earnings of South Africans, 2010’ provides another rich source of highly relevant data.  This publication gives comprehensive details on median wages, as opposed to the misleading average wages.
The ‘median’ is the appropriate measure of anything that is highly spread out, like South Africa’s notorious inequality of the very rich amongst the very poor.  Median addresses this distorted picture.  It does this by shifting an exclusive focusing on wages to the counting of people, with wages being the discriminator. The medium wage is thus the wage that distinguishes the bottom 50% of the population from the top half of the population.  If, in the previous example of 100 people, 50 earned R5 or less and the remaining 50% earned between R5.01 and R1000, the median wage would be R5.  This is why the median is also called ‘the typical wage’.
According to Stats SA’s ‘Monthly Earnings’ survey, the median wage for a South African worker, both formal and informal, was R2,800 per month in 2010.  This is to say, half of the total of a little more than eleven million ordinary employees in South African earn R2,800 or less.
Making it even easier for economists to give accurate information, the ‘Monthly Earnings’ report seeks to give data about people who are more typically seen to be workers.  It thus excludes two categories that are usually classed as workers.  It excludes the 686, 000 people who employ others.  Their median earnings are R7,000 (which is so low as to indicate that the owners of the large number of small and medium enterprises are covered by this group).  Also excluded are the 1,207,000 self-employed or ‘own account workers’.  They range from the corner car-guard to the previously mentioned solicitors who are cheap at R40,000 per day.  (Despite the wealth at the top-end of this group, the earnings median is a mere R1,820 per month).
Half of the informally employed workers earned R1600 per month or less. Half of the 568 000 workers in agriculture earned R1213 or less and half of the domestic workers, i.e. some 565 000 people earned R1000 per month or less.
The enormous coverage given to the argument of ‘overpaid’ workers reflected in such shockingly revealing titles as ‘South Africa Cant Afford South Africans’ makes it apposite to share some more of the information provided by Stats SA.  We are back with ‘averages’ but they are most revealing nonetheless.  The average wage in 2010 was R2481 for informal, R1854 for agriculture and R1224 for domestic workers.
What the above very brief outline shows is that there is no excuse for our celebrity economists who shamelessly misuse statistics.  They choose to ignore the data that is readily available.  They are content relying on the public’s general discomfort with statistics to get away with their prejudices.  The questions are whether this is done knowingly or not and which is the more reprehensible.  If – or to the extent that – it is not done knowingly, these economists could be well served by exposure to statistics for dummies.
table-prejudice-parades-as-economics
Facsimile: One of the tables in “The Monthly Earnings of South Africans, 2010” from Stats SA.
Doctors Forslund and Rudin are researchers at the Alternative Information and Development Centre in Cape Town.
[Published – slightly edited and without table – as ‘Thumb-sucked wage statistics not useful in jobs row’, Mail & Guardian 1/6/12.]
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