By Corrie Kruger
The measurement of the labour income share (LIS) is a topic of substantial interest in the field of economics.
The stability of the labour income share and the apparent variation of the labour share between countries at different income levels has attracted intense scrutiny.
Self-employment constitutes half of the global workforce and, given the negative relationship observed between self-employment and national income, these measurement problems have been highlighted mostly in developing countries.
First, the degree of labour income inequality is strongly and negatively correlated with national income; this exacerbates average income differences between countries, resulting in a very unequal distribution of global labour income.
In 2017 the top decile earned around half of the overall global labour income, whereas the poorest half of the workforce earned less than seven percent.
Second, within countries, increases in the shares of labour income for the highest earners are associated with decreases for much of the other workers, whereas increases in the median share of income tend to be positively associated with increases in much of the distribution, particularly towards the lower end, and decreases for the top.
Total tax revenue collections for 2020/21 declined by 7.8% to R1 249.7 billion from the R1 355.8 billion previously.
Personal Income Tax (PIT) at 39.1% came to R407,2 bn, Corporate Income Tax (CIT) at 16.4% and Value-added Tax (VAT) at 26.5%, in aggregate remain the largest sources of tax revenue and comprise 81.9% of total tax revenue collections.
The tax-to-GDP ratio moderated from 23.8% in 2019/20 to 22.5% in 2020/21. From these numbers one can calculate the GDP (R5.5 trillion) of the country and what the total income (R1.8 trillion) was paid to individual taxpayers.
The number of 6 369 806 individuals are estimated to have received taxable income below the minimum income tax threshold of R70 000 while 7 643 157 taxpayers are estimated to have received taxable income above the minimum income tax threshold.
The portion of the GDP that does not go to labour goes to reward capital.
Broadly speaking, economic output must flow either to owners of capital, in the form of profits, dividends and rents, or to labour, as wages, salaries and benefits.
Economists refer to this as the “capital” or “labour” share of GDP.
Relative to world norms the above numbers look quite acceptable. However, the above graph is heavily skewed in favour of the top 25% earners in the labour force.
This component accounts for as much as 75% of the earnings. The lower end of labour’s share of the GDP is unrecognisable smaller.
The portion of the GDP that is left after capital compensation plus that of the top 25% of labour, which reaches the remaining 4m workers record only a participation rate of 15%.
The correlation between GDP and labour compensation is well understood and policymakers spend a lot of time on growing the economy which of course is a good thing.
However, all is not equal and fair in the treatment being dished out.
For instance, in the current economic situation the Reserve Bank raises interest rates. Beneficiaries from higher rates are the capital owners, in particular large banks, long-term insurance companies and pension funds.
The average individual is losing, yet it is said that he should adjust his spending habits. Existing home loans and car finance rates go up. If the idea is to change behaviour should the higher rates apply to existing loans. New loans should be subject thereto.
It is interesting to note the huge gaps in interest rates across the globe. The Central Bank of Nigeria raised its monetary policy rate by 150 bps to 15.5% at its September 2022 meeting.
Nigeria’s annual inflation rate climbed for the seventh straight month to a 17-year high of 20.5% in August, amid soaring food prices, higher diesel costs and continued currency weakness due to a chronic dollar shortage.
The annual inflation rate in Japan rose to 3.0% in August 2022. The yield on the benchmark Japan 10-year JGB traded above 0.25%. The Bank of Japan (BOJ) maintained its -0.1% target for short-term interest rates.
The table below illustrate the various interest rates in other economies around the world. Some rates are high, some are low and, some in between.
The “strength” in the US dollar has come from world domination and layer upon layer of treaties and agreements that benefit the US while acting as the custodian of moral values.
The US understands geopolitics and has shaped it to place the US in the position it is in today. However, the strength of the dollar is not sustainable.
Corrie Kruger is an independent analyst.
BUSINESS REPORT