23 July 2014

South Africa: Op-Ed - Mike Schussler Is Wrong About Inequality. Here's Why


Popular economist Mike Schussler's recently published article distorts the available statistical evidence to buttress a bizarre argument. This is my response.

Schussler's article has three central thrusts.

First, he argues that South Africa is not as unequal as popularly thought.

Second, Schussler asserts that 'the major cause of inequality is not the pay gap, but rather the low number of people earning wage income, that is unemployment is to blame.

Third, he claims that the cause of high unemployment is "militant labour organisations" making "demands for ever increasing wages". Remarkably, the conclusion is that increasing wages for the working poor increases inequality.

The claim that South Africa is not as unequal as often believed relies on manipulations of the Gini Coefficient, a standardised global measure of inequality ranging from 0 to 1, with 0 the most equal and 1 being the most unequal. Schussler argues that if you take account of social grants, education, health provision, and "the highly progressive nature of our tax system" the world-leading 0.69 Gini Coefficient drops to 0.47 - in line with the UK and USA. When isolating those in the "small formal sector" the Gini coefficient is as low as 0.28,...

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