Tyranny of numbers

Revelations of high CEO pay in Iran: what do they imply about wage inequality?

Posted in Inequality by Djavad on June 23, 2016

The recent revelations of “astronomical” salaries of CEOs and top government officials in Iran, up to 2.4 billion rials per month ($68,000 at the free market exchange rate or $200,000 PPP) have embarrassed and put pressure on the Rouhani government.  But how high are these salaries in light of the wage distribution in Iran and CEO pay elsewhere?

Before answering this question I should confess that the sensational revelations of top salaries may be just that. For example, the 2.4 billion rial salary, belonging to the beleaguered (now fired) head of the Workers’ Welfare Bank, Ali Sedghi, is not his actual monthly salary.  One document I saw online shows his regular salary to be about 89.8 million rials, one-third of the reported total, which includes end of the year bonus, etc.  But let’s take the higher figure for the sake of argument.

In the US, where wage inequality is the highest among developed countries, in 2014 the reported average CEO compensation for the largest firms was $16.3 million. This is more than 800 times the US minimum wage, and 200-500 times the median wage, depending on the source.  In Europe the ratio of CEO pay the median wage is much smaller: UK 22, France 15, and Germany 12.

Where does Iran stand in this metric?  The latest year for which we have wage and salary data is 2014/2015.  Wages have not changed much in real terms in the last year or two, so these data can be reliably adjusted for this year by multiplying them by the inflation rate since then, about 18%.  According the Household Expenditures and Income Survey of 1393 (2014/15), the monthly median wage (in today’s rials) is about 8.26 million rials (about $235 or $700 PPP).  The ratio of the highest CEO salary reported  is thus about 290, which places Iran in the high range for this metric of wage inequality.  Of course, as I said earlier, this is the highest reported number and the average is probably (hopefully?) lower, but even considering that we are quite far from he European range of the ratio of  CEO to median worker pay.

In case you are curious, wage inequality is lower than overall income inequality.  The Gini index for all incomes in the survey is about 0.40, where as for wages is 0.35.  In light of the revelations of CEO pay, both numbers are underestimates because the highest monthly wage in the survey is 215250000 rials, which is less than 10% of the highest reported CEO pay of 2.4 billion rials.  Sometime ago I warned in this blog about under-reporting of high incomes.  The new revelations are more evidence that the Statistical Center of Iran is not covering very high incomes.

How do high Iranian CEO salaries compare with the minimum wage?  Interestingly, the minimum wage is not much lower than the median wage.   The approved minimum wage for 2016/17 (1395) is set at 8,121,640 rials per month, which is only 2% lower than my calculation of the median wage for this year.  This is not entirely surprising if you know how poorly are the minimum wage laws enforced in Iran.  According to survey data, about 40% of wage earners earn below the minimum wage, most pf them in rural areas.  Of course, there is probably some under-reporting of the wage, too, but minimum wage laws are mainly enforced in larger enterprises, and most workers in Iran work in small, less formal enterprises.

 

 

 

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2 Responses

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  1. Djavad said, on July 11, 2016 at 11:31 pm

    Thanks. You are probably right about private salaries, though we know less about them because politically they are not as damaging.

  2. Mostafa Mehrafza said, on June 27, 2016 at 6:05 am

    Good day, excellent as allways.
    You may consider that those wages are not paid at private enterprises in Iran but at the state related organizations like state bakes etc. The salayries of state servants who work at the highest level of execution in Germany is never 12 times of median wage but about 5 to 6.


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