The Wage Scandal in Iran: Politics or Economics?

ECONOMY 08.10.2016
Murat Aslan Coordinator of Economy

A scandal erupted in Iranian political agenda about astronomic salaries of certain state officials during the March of 2016. The issue attracted a lot of attention because of political debates over the nuclear deal with P5+1 as well as widespread poverty. The scandal revealed that these officials receive salaries sometimes 100 times more than the ongoing minimum wage in Iran. This essay will analyze the scandal and its reflections within the political economy context of Iran. The first section presents the scope of the scandal and general information about the names involved. Additionally, one can see the political affiliations of the prominent people who have been involved in the scandal. In the second section, salary scandal is analyzed under the framework of the economics discipline as a social science. The third section focuses the scandal’s political dimension. The scandal carries potential ramifications for the upcoming presidential elections to affect the internal struggle with in Iranian political structure.

The Scope of the Wage Scandal and the Figures Involved

In Iran, a scandal broke up on social and print media after it was revealed that some directors of state-affiliated companies on insurance and finance are paid astronomic salaries. It seriously undermined the image of the Rouhani administration after it was publicly acknowledged that some top officials at the state-owned companies had received a monthly salary of sometimes 100 times more than the legal minimum wage. Because a significant share of Iranian population lives in poverty, it generates public uproar as to why and how some people are favored and paid ultra-high salaries. The timing of the leakage was interesting as only months remained until the presidential elections. After the scandal erupted, Mohammad Ibrahim Amin, the Head of Central Insurance Company of Iran, was the first to step down by apologizing from the Iranian public. Media reports revealed that Amin had been paid approximately 850 million riyals (or 28,000 USD). Another figure was Seyid Safdar Hosseini, the head of the National Development Fund. Hosseini is an important figure as a reformist and a former minister of Khatemi’s cabinet.  Similarly, Ali Sedghi, the chairman of Bank Refah Kargaran (Workers Welfare Bank) is also from the reformist camp and has long been under heavy attacks by anti-reform groups.

The Salary Scandal through the Lenses of Pure Rational Economics

In terms of economic logic, there can be some justifications for high salaries. However, the issue at hand has several dimensions including emotional, moral or social aspects. From the public conscience or personal perspectives “Is it fair to pay astronomic salaries to top officials?” or we could ask whether the real problem is with extremely high salaries. Under the premises of positive economics, a well-educated person is a scarce resource and it is perfectly normal for them to earn high amounts of payments. Thus, it does not contradict with the principles of economics for top Iranian officials to be paid high salaries as long as they are hired on their merit and ability. Concerning the salary scandal the monthly amount paid to top officials ranges between 10,000 USD to 25,000 USD and the minimum wage is approximately 250 USD per month in the year 2016. In other words, top officials had been paid between 40 times to 100 times the minimum wage in Iran. If we compare these numbers to Turkey we could see that top CEO wages are between 50,000-80,000 USD per month (where the minimum wage is around 430 USD per month). It means that top officials in Turkey earns 100-150 times more than the minimum wage. In other words, Iranian salaries paid to the CEOs of finance and insurance companies are comparable to their Turkish counterparts. Another comparison could be made between Iranian CEOs and their counterparts in the advanced North. In Europe the salaries of the top CEOs in the giant corporations reaches to 380 times the minimum wage and in the USA this gap is even wider. An American CEO is paid as high as 775 times more than the minimum wage.

Normative and Political Dimensions of the Scandal

The issue at hand can be viewed through the premises of normative economics. As opposed to efficiency and utilitarian-based positive economics, the normative economics focuses on core values such as social justice, income equality, fair wages. In Iran 30 percent of the population lives under the poverty line while the general unemployment level is recorded around 10 percent and youth unemployment rate reaches 28 percent[1]. Thus, poverty, unemployment and income inequality create serious problems in Iran due to public perception toward wage differentials and social justice.

It is also possible to analyze the salary scandal under the lenses of the political economy framework. This salary scandal can be viewed as a structural problem in which the dynamics of political processes interact with the law of economics. It is obvious that Iran has structural problems such as dysfunctional bureaucracy, weak rule of law and lack of good governance. All these problems are affiliated with the prevalence of religious ideology and political establishment along with the rentier economy. Public share in the Iranian economy is as high as 60% according to expert opinions[2].

Considering that Iran is a rentier economy and public share in many sectors is considerable, the natural outcome is inefficiency, poverty, corruption and misallocation of resources. As rulers tend to entrench a patronage-based economy it is more about human nature than greedy rulers or governments. Consequently we could say that in light of political economy the real problem does not lie in high salaries but rather it is about the bottlenecks of the national economic structure in Iran. The moderates led by the President Hassan Rouhani and the hardliners led by the Supreme Leader Khamenei will compete in Iran’s presidential elections that are scheduled for the 19th May of 2017. These normative problems and debates offer politically influential strategies for political opposition (i.e. the conservatives) to challenge the moral stance of the Rouhani administration. While the moderates are testing hard-liners’ grip on power, Iranian political establishment was successful to shape the public perception. As the elections near, we will see more of this kind of arm-twisting and further revelations about the political economy of Iran.

[1] To see detail data about unemployment in Iran: “Development Indicators of World Bank”;   http://data.worldbank.org/data-catalog/world-development-indicators

[2] Due to lack of data, difference sources estimate different results.  In informal conversations, the number reaches as far as 70-80%. See for example, http://www.globaltenders.com/economy-iran.htm

 

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