The South African wage myth

Ever wondered where all the cars in South Africa come from, if only three out of ten South Africans work in the formal sector and half claim they earn less than R4 800 a month?

Well here is the evidence that this claim is totally removed from reality and is a very common lie. Minimum wages will soon become a reality and the only question is what the amount will be.

Normally one would expect business, especially big business, to parade research that the situation is unaffordable, but this – almost surprisingly – is not the case. Big business is actually not even taking part in this debate, at least not in public. Small business has also not been very vocal, but then again, this sector has been silent for the better part of two decades.

Many academics have done extensive research into the subject and, based on several surveys where workers were asked what their wages were, have found that median wages in the formal sector are about R5 100 per month, adjusting the formal sector median from the Labour Force Survey (LFS) which finds the median for the formal sector at about R4 800 per month.

The actual median salary is a lot more and this is why big business seems unconcerned about the introduction of the minimum wage. The LFS’s formal sector median of R4 800 per month is a myth and has been known to people who do the actual payments on behalf of big companies for some time.

The fact is that the formal sector is already paying well above the minimum wages, although there are a few sectors such as agriculture, retail and security industries that pay less. (These businesses are predominantly small businesses and minimum wages are often under R4 000 a month.)

Domestic workers and the informal sector also receive wages below R3 000 a month, but the big bulk of wages in the formal sector, especially in major towns, are significantly higher than the proposed minimum wage.

Wage surveys lie and the results are misused

Surveys such as LFS claim that the typical wage in South Africa for all workers (formal and informal combined) is under R3 200 a month. It also claims that a typical wage in the formal sector (excluding agriculture) amounts to around R4 800.

While some academics have adjusted the formal sector upwards to about R5 100, other more reliable data and economic indicators show that even this adjustment is a significant underestimate. Unions have often used the LFS wage data to show that workers do not receive inflation-adjusted wage increases and that the typical worker cannot make ends meet. These unions from the formal sector seem to be saying that they have not been successful despite being able to negotiate higher wages in excess of inflation for decades. They claim they were unsuccessful despite regular strikes, several government determinations and the introduction of many bargain council decisions.

There are many real life examples that debunk the low wage myth.

Three data sources that dispel the myth 

There are at least three independent data sources that provide perspective on income and salary data and which show the large holes in salary survey data.

Firstly, the National Credit Regulator has been capturing data on consumer loans since 2007 and this data shows a median wage that is much higher than the official median. This data also includes claims of income from people who receive social grants and remittances from family members. The sample is also very large. There are approximately 20 million applications every year for loans from a variety of credit providers. This data indicates that the national median personal income is R8 134, which is a lot more than the LFS’s all worker median of R3 120.

This data therefore shows that the typical income is 160% above the typical survey data and it includes people on grants or who get remittances from family members. (See graph)

The story of two medians

Source: Economists dotcoza from NCR and StatsSA data.

Secondly, debt councillors who deal with people who cannot pay their debt, also compile useful data. This data shows that in the year ending in March last year, the typical individual with a debt repayment problem earned between R7 500 and R 10 000 per month. The sample is also significant as about 90 000 individuals were placed into debt counselling in the year to March 2015.

But perhaps the most damming administrative data that shows that income questions in surveys are not answered honestly, is from the taxman.

In the tax year to end March 2013, just less than 80% of completed income tax returns processed showed the number of taxpayers earning more than R400 000 was over 750 000!

Compare this with the Labour Dynamics report compiled from the LFS that shows only 487 000 individuals earned more than R360 000 per annum in the whole of 2013.

This suggests that the taxman has at least 85% more people earning over R400 000 than the LFS has earning over R360 000. Indications are that people seriously under-report their income in surveys – perhaps also to the taxman, but that is a story for another day.

More recent tax statistics revealed that over 7.1 million people paid personal income tax, which means that they earned more than R6 000 a month. This is the majority of the 10.8 million people working in the formal sector and needless to say it will translate into a median salary that is a lot further north than the claimed formal sector median of R4 800 a month.

Add to this the 820 000 private pensioners and it is clear that administrative data which comes with a form of proof shows wage surveys to be a lie. (Private pensions average about R6 000 at present when paid out and many of the people are over 65 years and would not pay income tax on this.)

But consider this: if you still believe the LFS survey on income gives a true reflection of reality, look at claims from government officials. In 2013 a total of 37% of the government employees stated that they received less than R4 500 per month. This while at the time, the lowest pay grade was R5 261 per month. (Payroll statistics reveal that less than 5% received less than R6 000)

Some 10% claimed they earned less than R1 500 per month and a few were slaves and earned nothing!

Big business is silent on minimum wages because they already pay at those levels and beyond in the main – however some SMME’s may have a problem.

Brought to you by Moneyweb