The labour share of Cuban national income

According to the World Bank, Cuban GDP capita was \$9,477/year in 2020. On the other hand, Wikipedia suggests that Cuban factory workers earn about \$204/year; and that Cuban doctors earn about \$360/year. Based on these numbers, one might infer that average Cuban wages are an order of magnitude lower than Cuban GDP/capita. I understand that average wages are not the same as GDP/capita. For one thing, GDP/capita includes non-labour income (e.g. interest payments); whereas wages do not. However, I find it very striking that wages and GDP/capita can diverge to such an extent (for comparison, the labour share of GDP is about 0.6 in the US). What could be going on here? While many explanations are possible, one story is that the great majority (> 90%) of Cuban national income is generated by various nationalised resources (coffee, tobacco, etc.) and goes directly into the bank accounts of the owners of these resources (i.e. government officials + selected multinationals). Is this the current situation? Or is the main explanation something else (e.g. remittances, totally inaccurate data, etc.)? • Is this based on foreign exchange rates or purchasing power parity? Notice that because you are measuring Cuban GDP in US dollars, it says how much stuff a Cuban doctor can buy from the US. Apr 21, 2022 at 12:12 • It shouldn't matter provided that both numbers (for wages and GDP/capita respectively) are converted in the same way. However, this may not be the case... An added complication is that plenty of Cuban GDP/capita is generated directly in foreign currency (and also spent directly in foreign currency!) Apr 21, 2022 at 17:42 1 Answer Most likely this either because of bad GDP or wage data. Regarding GDP The Cuban GDP data are not very reliable, I think that might be the ultimate cause of discrepancies. According to the USAID (2007): • GDP statistics are highly unreliable, particularly since 2003/04, when the government added the value of free social services and subsidies to rationed consumer goods (explained above). • The official adjustment of GDP to inflation cannot be checked because the data on the basket of goods and services used to calculate the cost of living have never been published, and the prices of goods sold in hard-currency shops are excluded from the calculation. Furthermore, in 2001 the base year used to estimate GDP in constant pesos was shifted from 1981 to 1997, which led to an artificial annual average increase of 56 percent in GDP value for 1989–2000 (the period for which the old and new series are available). • The conversion of pesos to U.S. dollars is arbitrarily set by the Cuban government (the peso is not traded in the world market). • Cuba is not part of the U.N. International Comparison Project and does not publish the statistics needed to estimate GDP per capita in PPP U.S. dollars. Even though the report is from 2007 Cuban statistics is still plagued by the above issues. Regarding Wages I think the wage data from Wikipedia may also not be accurate. Wikipedia does not list source for that wage data. According to teleport.com median Physician salary in Cuba is \$1,648/year with Q1 being \$1209/year and Q2 being \$2246/year. That is quite large discrepancy from what the Wikipedia claims the 'typical' salary for doctors is.

Synopsis

I believe bad data are the root cause of the discrepancy.

According to Guerriero (2019) labor share of income for Cuba can be estimated (exact value is not known), to be 0.47, 0.63 or 0.53 (on average between 1970-2015) depending on what measure you want to use (see the paper for details). Even though this is average it is reasonable to work with as labor share does not change that much, according to the author standard deviation of Cuban labor share for the last estimate was only about 0.01. Furthermore, even though the estimates are for period 1970-2015 it is unlikely there would be some radical changes the labor share during last 5 years for the same reason.

Hence the GDP per capita of \$9,477/year would imply that average labor incomes should be somewhere in the ballpark of: \$4454.19/year, \$5970.51/year or \$5022.81/year. These are the implied estimates of per capita wage incomes. So this rules out things like remittances or interest income etc. You would still expect the gross labor earning to be on average somewhere around \\$5000 dollars.

Furthermore, the Wikipedia's estimate of wages seems to be also too low but even if we would go with teleport's estimates (which also could not be 100% accurate) there would still by huge discrepancy between what you would expect to see.

Lastly even if the methodology for converting pesos to dollars might not be consistent between sources it is hard to imagine it could lead to such a large discrepancy.

The only plausible alternative to bad data I can see is that Cuba somehow has extreme inequality, with some laborers for who's wages micro data are not available. However, I still find it quite unlikely. Bad GDP and wage data are most likely culprits here.

• Re wages: I suspect that the discrepancy between Wikipedia and teleport comes from converting to USD using the official vs unofficial exchange rates. Right now, these differ by a factor of 4-5, which is also roughly the factor by which the Wikipedia/teleport estimates differ. Apr 21, 2022 at 17:35
• I should also add that, based on recently speaking to some people in Cuba, the salary figures given in Wikipedia are at least the right order of magnitude (assuming you convert from CUP to USD using the "market" exchange rate, not the official rate). I don't know about the GDP/capita figures though. Apr 21, 2022 at 17:39
• @afreelunch I agree that the teleport estimates might not be accurate I even said so in the answer my point is we don’t even know if those wages are accurate as well. There is no link on Wikipedia to original source. Maybe some local wrote it based on personal experience and it’s accurate. My whole point is that GDPpC Wages are indeed inconsistent and given the LS of income can’t be explained by things like remittances
– 1muflon1
Apr 21, 2022 at 18:10
• Right, if the labour share of income is indeed 0.47 -- 0.63 (as in the Guerriero paper), then either my wage numbers or my GDP/capita numbers must be wildly wrong. But I am not sure we can trust the Guerriero paper -- for one thing, it is most likely based on the same GDP data! (And doesn't go into details about Cuba) Apr 21, 2022 at 18:13
• @afreelunch 1. the paper was produced by institute of Asian Development Bank, and it works with generally accepted methodologies. 2. It does not use WB data but UN and ILO Yearbooks of Labour statistics. It uses income data not spending approach like WB check the methodologies. 3. I would consider the estimate there to be the most trustworthy number in this whole thread. If you are willing to trust Wikipedia without even providing source for their statement I don’t see reason not to trust the paper. Ultimately you will have to trust some source if you want to answer your question
– 1muflon1
Apr 21, 2022 at 18:23