The quality of South African wage data: accounting for deductions, debt and disclosure

Year: 
2016
Working Paper Number: 
397
Unit: 
Author: 
Jeremy Seekings
Abstract: 
Whilst close attention has been paid to many methodological challenges to the estimation of (un)employment and poverty rates in South Africa, the challenge of under-reported earnings data has been neglected. Comparison of data on earnings from household surveys with data from firm surveys, national accounts and some other sources suggests that earnings are under-reported in household surveys. The most likely explanation is that deductions (not only tax and contributions to pension funds and medical aid schemes, but also debit and garnishee orders linked to personal debt) result in an under-reporting of both gross and net earnings. Insofar as deductions are the likely explanation, earnings (and trends in earnings) are most likely to be flawed for workers in the upper part of the income distribution. Mean wages are more likely to be affected, and by much more, than median wages. This has consequences for analyses of changing real incomes and the efficacy of the institutional regulation of wages. An additional likely explanation is a deepening culture of under-stating earnings, as earners do not fully disclose their pay in order to contain the demands made on them by household members, kin, neighbours and others. The distributional effects of this understatement of earnings are unknown.
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