Case Study Of Income Inequality

As a response to the highlighted problems that South Africa faces, the following recommendations are made. The proposed recommendations are centred on the need to effectively redistribute socio-economic benefits.

Redistribution

The one fundamental setback that is facing the country’s bid to address growing inequalities is the failure to redistribute social and economic resources. One of these resources is access to land and capital. Whilst other nations are suffering from an economy completely dominated by the majority of the population, South Africa suffers from the adverse of this. The country is historically built on a system that has the minority of the population (less than 10%) owning a significant portion of the economy, whereas the majority population (more than 80%) owns less than 10% of the economy.

It is therefore important for South Africa to move towards policies that will redistribute the economy in order to curtail income inequality. Such policies can be targeted at the following industries.

Agriculture: The country needs to move towards progressive and radical policies on the land issue as access to land for Africans is still a barrier. There should be a speedy process in land reform in order to allow many communities to be involved in the agricultural process through the creation of community agrihubs to be championed by cooperatives. Land reform and redistribution should be inclusive and benefit as many African people in order to attenuate increasing inequalities and access to land. Communities who get access to land for agricultural purposes should also be supported in order to increase the sustainability of agriculture and food security given that the African population is growing rapidly. This will allow communities to generate their own wealth instead of depending on the state.

Increasing spending in black businesses

The government has to have a clear intervention that targets black businesses when it comes to governmental spending. During the 2017 State of the Nation Address, the President stated that the government will pursue economic transformation by ensuring that 30% of government’s spending goes to black (African, coloureds and Indians) businesses. However, 30% is still too little in a nation whereby Africans make up 80% of the population.

Government must increase its spending in African businesses to more than 65% in order to accelerate radical economic transformation that will curb economic inequalities. This will not happen overnight, but there should be gradual progress to realising this. Investing in transformation could lead to improved economic distribution for all South Africans.

The government must accelerate its investment in emerging industrialists in order to expedite industrialisation process and job creation. This could also lead to better service delivery and job creation for the majority of people mired in poverty.

The government needs to also promote rigorous Black Economic Empowerment (BEE) policies that will be measured in terms of results in the distribution of economy. This will ensure that the redistribution of the economy is measured by the number of hands that are equally benefiting from the economy rather than participants in the economy.

Corruption

Tackle corruption in the public and private sector. This will ensure that there is sufficient money to deliver basic services to communities. This is because many inefficiencies emanate from mismanagement and maladministration from the public and private sectors. This undermines the good intentions of equitable redistribution. This includes illicit capital flows that are stealing the future of millions of South Africans. This can be done through introducing stronger and rigid tax systems that will limit tax evasion and illicit cash flows.

Increasing the minimum wage

The best possible way of going about cutting income inequality and at the same time act as a response to poverty is through increasing the minimum wage and also protecting informal workers. South Africa has already adopted a minimum wage which is R3500 per month and R20 per hour. However, the problem is that this minimum wage is below the poverty line. This therefore means that even if the wage increase is effective, people will still be mired in poverty. The country can follow Atkinson’s (2015) recommendation of a minimum wage above poverty line.

South Africa should look at increasing the minimum wage to a standard of living that is acceptable in order to reduce poverty and income inequality. This can be done through focusing on the household level rather individual level when benchmarking the minimum wage. It is important to note that the average monthly earnings of Africans are not increasing at the same pace as of white counterparts. Therefore government should implement policies that will prioritise increasing wages for people who are in the lowest income order. This will ensure that some progress is made in decreasing income inequalities and poverty.

Through adopting this strategy, the country could simultaneously address income inequality and poverty. This can go a long way in building up social cohesion and ensuring that societies are integrated. In this instant, social cohesion depends on the nation’s ability to keep its people above poverty line and earning decent income as advocated by the International Labour Organisation (2014).

Unemployment and poverty

Government needs to relook programmes aimed at reducing unemployment and poverty because current programmes are not yielding the necessary results. It is also important to restructure resource allocation towards those programmes.

A lot needs to be done in terms of enrollment at higher education and job creation. Enhancing youth skills must be at the centre of solving high rates of unemployment. Access to quality basic and tertiary education among South African youth, as well as meaningful job creation will directly contribute towards economic transformation and addressing the triple challenges. This can only be achieved through improving South Africa’s education system as it has the potential to attenuate the unemployment rate and subsequently address inequalities.

Social Cohesion

The government needs to promote programmes that are aimed at building social cohesion among citizens and foreign nationals. This can be done through cultural exchange programmes that will foster cohesion. The low levels of social cohesion are contributory to the current xenophobic attacks that the country is experiencing in some parts of Johannesburg and Pretoria.

The government must accelerate service delivery and work with the private sector to accelerate job creation to ensure that citizens have a safety net. This will in turn improve social cohesion and diminish xenophobic attacks because poverty, unemployment (scarcity of jobs) and lack of service delivery have been the foremost drivers of xenophobic attacks.

Income equality can lead to better socio-economic conditions for citizens and strengthen social cohesion. Therefore, government must ensure that income equality is adhered to in the workplace. This can also be done through investment ventures that are aimed at creating inclusivity by involving multiple ethnic groups.

Sixteen years ago, Cornell’s Larry Kahn described sports as “a labor market laboratory” (1). We agree. The abundant, publicly accessible data in the sports industry lends itself to answering a plethora of statistics-driven research questions given the access to clear job-related performance measures such as win-loss records, rankings, and earnings.

Here, we answer two questions: (i) what was the level of income inequality among the world’s top professional golfers over the course of 23 years and (ii) how do the genders compare on this metric? With issues of income inequality frequently the subject of media headlines and political discourse, we chose golf—as opposed to some other industry—as a case study for dual reasons. First, golf is an individual (not team) sport, allowing for a cleaner analysis. Second, the genders compete in near-identical tournament formats, yet the labor markets are almost always separated.

To tackle both lines of inquiry, we calculated Gini coefficients for both female (LPGA Tour) and male (PGA Tour) golf pros from 1990 to 2012, a time period where available data allowed for a comparison between the genders. Gini coefficients are a widely adopted, parsimonious statistical technique to gauge wealth stratification among groups. Always between 0 and 1, Ginis indicate relative levels of wealth. A Gini coefficient of zero would be pure communism, where everyone made the same amount. A Gini coefficient equal to one would represent a group where one person made all the money and everyone else earned nothing.

Pro golfers were well-compensated during our sample time period, as Table 1 below illustrates. We complied Top 100 prize money lists from the official archives of the LPGA Tour and PGA Tour and note that such figures only captured winnings based on official tournament play. Off-the-course endorsement income and play during exhibition events—both lucrative options for players that may exceed official tournament winnings—were not included. Given that a prominent list of athletes with the most profitable endorsement deals of 2010 included two professional male golfers in the top 10 (Tiger Woods was number one) and no women in the top 25, one could surmise the wealth disparity has historically been much greater in golf than even career earnings suggest (2).

Table 1: LPGA Tour and PGA Tour Prize Money (in US Dollars)

1995200020052010
RankLPGAPGALPGA
PGALPGAPGALPGAPGA
1666,5331,654,9591,876,8539,188,3212,588,24010,628,0241,871,1664,910,477
10426,957914,129585,6942,169,727776,9243,213,375883,8703,574,550
25228,137723,834339,1121,631,695540,1672,185,310436,9682,559,646
50124,888357,658181,939947,118246,2801,606,185204,6711,589,337
10037,832182,59577,144485,58961,074849,89143,357954,011

Likewise, we note that the prize money purses in PGA Tour events generally exceed those found in tournaments on the LPGA Tour. For example, in 2010, the total tournament prize money in the four most prominent PGA tournaments (events commonly referred to as the majors and including the Masters, U.S. Open, PGA Championships, and British Open) was $29.5 million. In contrast, during the same year on the LPGA Tour, the four majors (Evian Masters, Women’s U.S. Open, Women’s PGA Championships, and Women’s British Open) offered total prize money of $14.5 million. In addition, there are more tournament events on the PGA Tour compared to the LPGA Tour. For example, in 2010, there were 46 PGA Tour tournaments compared to only 24 LPGA Tour events. Both factors—greater prize money on a per-tournament basis and differing numbers of tournaments per year—are relevant for context here.

Gini coefficients for the LPGA Tour and PGA Tour are in Figure 1 below. There are two major takeaways. First, during the entire 23 year time span of our analysis, the two tours have never overlapped on this measure. The women’s LPGA Tour has consistently exhibited a greater level of tournament earning disparity among its members ranked in the top 100. Second, the gap has generally been expanding since 2000.

Figure 1: Wealth Disparity in the LPGA and PGA per Gini Coefficient

Differences in wages among professional athletes on the basis of gender are well-documented. Variables that highlight the lack of parity in sport include disproportionate prize money and overall compensation (3) and a lack of coverage of women’s competitions in various forms of media (4, 5). Compared to prize money for comparable men’s professional sports, women competed for significantly smaller tournament purses and, in most instances, fewer spectators (6).

These differences are seen in professional golf too, where the average earnings for top players on the LPGA Tour are considerably less than amounts earned by men competing on the PGA Tour. Academic researcher Stephen Shmanske attempted to explain the difference as follows: “Actual attendance and television ratings are lower for LPGA events, and this translates into lower prize funds. …Neither lower attendance nor lower prize funds are proof of discrimination because…higher earnings (and higher attendance) are justified to the extent that men exhibit higher levels of skill” (7).

Our analysis, however, revealed vast (and growing) intra-sport differences in income inequality when LPGA Tour Gini coefficients are compared to PGA Tour measures. Why?

In contrast to the PGA Tour, top LPGA Tour players earned more in prize money vis-à-vis their lower ranked peers. In other words, the LPGA Tour is structured more like a “winner-take-all” format, with LPGA tournament winners earning a higher percentage of the purse compared to the PGA. Simply put, PGA Tour prize money is disbursed more equitably than the women’s tour.

The difference leads to a few key points. First, as pinpointed by a group of researchers almost ten years ago, the wider incongruity in earnings may lead to a “superstar effect” in which the LPGA Tour’s best player was demonstrated to reduce the disbursement of financial revenues to peer tour members (8). Consequently, the presence of a capable superstar on the LPGA Tour can compound the disparity in prize money evident on tour overall.

Second, high levels of intra-sport income inequality may lead to greater competitive imbalance, although we are uncertain whether any such imbalance would be a net positive or negative for the LPGA Tour. We are unsure if there is some optimal level of parity among peers on the LPGA Tour.

Third, wide disparities in relative wealth among peers may lend itself to an increased possibility of some lower-earning players availing themselves of unethical and illegal means to supplement their income. Namely, as was recently seen in the gambling-fueled match-fixing scandal that hit the analogous individual sport of tennis, the vast liquidity of the global sports gambling market has resulted in situation where certain professional athletes can make more money wagering on themselves to lose than making a bona fide effort to win. For example, in 2010, the #100 ranked LPGA Tour golfer only made $43,357 in tournament prize money. Such prize money earnings may not be sufficient to cover travel costs and other expenses. While we are unaware of any lower-ranked golfers being caught purposefully underperforming for gambling-related reasons, we are cognizant of its possibilities.

Women’s golf has experienced increased levels of income disparity within the sport compared to the men’s tour. LPGA Tour executives are likely aware of these trends. With high-profile debates over differences in pay between men and women, the disparity among genders—revealed in our golf inquiry here—remains a sub-issue worth considering too.

References

1. Kahn, L.M. (2000). The sports business as a labor market laboratory. Journal of Economic Perspectives, 14(3): 75-94.

2. Bandenhausen, K. (2011, May 31). The world's 50 highest-paid athletes. Forbes.com.

3. Cozzillio, M. J., & Hayman, R. L. (Eds.). (2005). Sports and Inequality. Durham, NC: Carolina Academic Press.

4. Cooky, C., Messner, M. A., & Hextrum, R. H. (2013). Women play sport, but not on TV. A longitudinal study of televised news media. Communication & Sport, 1(3), 203-230.

5. Fink, J. S. (2014). Female athletes, women's sport, and the sport media commercial complex: Have we really “come a long way, baby”? Sport Management Review. 18(3), 331-342.

6. Flake, C. R., Dufur, M. J., & Moore, E. L. (2013). Advantage men: The sex pay gap in professional tennis. International Review for the Sociology of Sport, 48(3), 366-376.

7. Shmanske, S. (2000). Gender, skill, and earnings in professional golf. Journal of Sports Economics, 1(4), 385-400.

8. Matthews, P. H., Sommers, P. M., & Peschiera, F. J. (2007). Incentives and Superstars on the LPGA Tour. Applied Economics, 39(1), 87-94.

Bio: Ryan M. Rodenberg is an assistant professor of sports law analytics at Florida State University. Elizabeth A. Gregg is an assistant professor of sport management at University of North Florida.

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