Session 3: Regional manufacturing and industrial policy 2
Unemployment and earnings inequality in South Africa have declined in recent years, while the trend in overall income inequality is unclear. Inequality and unemployment both remain at extremely high levels by historical and international standards. There has been a very close relationship between trends in unemployment and earnings inequality in recent years. The decomposition of earnings inequality by employment status reveals the importance of unemployment in accounting for the level and trend of earnings inequality. The distribution of employment in the formal and informal sectors is also found to be important in explaining earnings inequality, as is wage dispersion within each of these sectors. Decomposing overall income inequality by income source confirms the overwhelming importance of earnings in income inequality more generally. Inequality is only likely to be dramatically reduced through a significant expansion of decent work for the low- and semi-skilled. Simulations of an expansion of low-wage employment show that this would reduce inequality, but the effect would be limited if wages are too low. While the introduction of a minimum wage would be expected to reduce inequality, its overall effects are contingent on the extent of any associated job losses.
The promise of asset-based approaches to poverty, as well as its limitations can be summarised with reference to the popular idiom: “teach a person to fish, rather than giving him a fish”. If the idiom were a development programme or project, it would aim to undertake two interventions (i.e. 1. training a person to fish and 2. availability of fishing tackle and equipment to fish). The objective of the intervention could recorded in some project plan as follows.
Through introduction of training and making equipment available the programme will contribute to supporting the sustainable livelihoods of X number of people.
However, development practice tells us that it is never so easy, because there is almost never a strong causal relationship between interventions and the intended outcomes, which can be demonstrated with reference to successful and unsuccessful outcomes. These are visualised in Box 1 below.
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In the face of a long-standing unemployment crisis that increasingly threatens social and economic stability, employment has at last taken centre stage in South African policy, and with this, focus is shifting to the structural constraints on employment creation within the economy. The New Growth Path, approved by Cabinet in November 2010, starts to tackle these issues.
Its emphasis on inclusive growth places issues of distribution more clearly on the agenda than they have been; and the Competition Commission has become poor consumers' knight in shining armour, tackling collusion and highlighting the negative economic (and employment) consequences of South Africa's highly centralized core economy.
What does this mean, however, for what used to be called 'the second economy'?
While much scholarship has focused on critiquing the concept of the second economy – with good reason – the stark inequalities that characterize South African society and its economy mean that policy-making processes still struggle to straddle both ends of the spectrum. What is good for the developed end of the economy can seem to be far removed from concerns in more marginalised contexts.
This article argues that the sharp divides in access and opportunity need to be located within the context of structural inequality. It focuses in particular on how the highly unequal structure of the economy impacts on economic opportunities at the more marginalised end of the economy, and how common sets of processes within a single economy produce and reproduce these outcomes. This locks people into poverty in ways that cannot simply be dismissed as a problem of 'dependency' - despite a growing tendency to do so. The article concludes by considering what this analysis means for development strategies targeting the unemployed and those eking out survivalist incomes.
Session 3A: Social Grants, State Expenditure and Welfare Outcomes
Session 6A: Subjective Measures of Welfare
Session 6A: Subjective Measures of Welfare
Session 8A: Wage Dynamics
South Africa has historically been ranked as one of the most unequal societies in the world, and while the country has experienced sustained positive economic growth since 1994, the impact of this growth on poverty, and particularly inequality, has been disappointing. Analysis using data from the 1995 and 2000 Income and Expenditure Surveys has found, for example, a significant increase in income inequality over the period and, further, that this increase in inequality eroded any significant poverty-reduction gains from higher economic growth. The release of the Income and Expenditure Survey 2005 has enabled us to now examine changes in inequality over the 10-year period between 1995 and 2005. Some preliminary analysis, however, shows a further increase in inequality over the second half of the period. This new result would possibly suggest that South Africa is now the most consistently unequal economy in the world. Critically, the persistent and increasing levels of inequality have been acting as a constraint to ensuring that South Africa’s economic growth results in significant declines in household poverty levels.
This study has two main objectives. The first objective is to provide a comprehensive overview of the changing levels of inequality in the post-apartheid South Africa and to identify the drivers of these changes. This also includes examining the relationship between economic growth, poverty and inequality over the period. The second objective is to evaluate the increased provision of social grants as a policy option to alleviate the impact of increasing inequality in South Africa.
Section 2 provides an overview of the changes in per capita income inequality between 1995 and 2005. Although private consumption expenditure is generally accepted as a more appropriate measure of welfare, we use income to calculate measures of inequality since we are particularly interested in the factors (i.e. sources of income) that have been driving the changes in income inequality. In order to develop a comprehensive overview of welfare changes in the country over the period, we also consider the changes in non-income inequality as captured by the distribution of access to a range of basic services and privately owned assets in Section 3. While it is generally accepted that economic growth has a positive impact on poverty, rising income inequality may dampen the impact of economic growth on poverty reduction. Section 4 investigates this relationship between economic growth, poverty and inequality for the period between 1995 and 2005.
The final section reviews the impact of the Government’s provision of social grants on income inequality. While the results from the decomposition of income inequality in Section 2 suggest that social grants as source of income did not serve to reduce income inequality, further analysis do show that social grant income made a significant contribution to total income across the income distribution, particularly in 2005. In this section we therefore exclude grant income from total income and recalculate some of the inequality measures as well the Growth Incidence Curves in order to estimate what the levels of inequality would have been in the absence of grant income
The paper argues for a broad based access to property, broader than access to title allows, with the potential for wider, quicker and more sustained reach. It motivates for a place for tenure security in the second economy strategy as a means for securing access to property, a pre-condition for actualizing the potential that property has to increase access to the economy by the poor. An over-emphasis on access to title has neglected other property based economic opportunities. The paper identifies the ways in which property may increase access to economic opportunities, shifting the emphasis from the dominant focus on the secondary market and capital gains to a more balanced and relevant consideration of opportunity in relation to the concentration of the country’s households on an income poverty continuum. These options are less promising than the beguiling prospect of bringing dead capital to life, or making capitalism work for the poor (de Soto, 2000). But they are more realistic and offer pragmatic and pro-poor avenues of support.
The argument is underpinned by a more sophisticated understanding of the nature of “the urban poor” (or alternatively a more pro-poor approach) than currently prevails in the policy discussions. The paper re-focuses attention on land based livelihood opportunities because of their relevance to the majority of the urban poor. It is a sobering, but realistic, perspective on the accumulation potential of property, and the deep rooted causes of poverty, rather than its symptoms (of which lack of title is an example). This approach is much more appropriate to a second economy strategy which seeks realistic opportunities in response to deep seated problems, rather than grandiose and unlikely achievements. The paper’s understanding of exclusion leads to intervention areas that include action in the “first economy”, rather than merely the imposition of mechanisms that are working for the wealthy, onto the poor. This approach opens the possibility of dealing with causes, rather than symptoms, and to alter the terms of incorporation into the economy in ways that benefit the poor more.
The systematic failure of post-settlement support in South African land reform has been identified as a major contributing variable to the approximated 50 percent failure rate of new land reform projects. In spite of this dismal record, government increasingly finds itself under immense political pressure to speed up land reform efforts in order to meet preconceived reform targets, and have embarked on the Proactive Land Acquisition Strategy (PLAS) for this purpose. It therefore becomes imperative that post-settlement support be prioritized if the failure rate of land reform is to be reversed. Without systematic and comprehensive post transfer support it is highly unlikely that most land reform projects will succeed in improving the quality of life of participants and make significant contributions towards transformation in rural South Africa.
Sharing the concerns of many key stakeholders in the Land Reform programme, The Rural Action Committee of Mpumalanga (TRAC-MP) launched the Mpumalanga Management and Mentorship Pilot Programme (MMMPP) in January 2003. By working on six diverse land reform projects, the MMMPP sought to develop experience and lessons in post transfer support strategies that could be shared with policy makers and shareholders to develop appropriate policies and programmes. Staff working on the MMMPP made significant inputs on the Mentorship Policy approved by the National Department of Agriculture in support of their Comprehensive Agricultural Support Programme (CASP) in 2005.
In 2006, TRAC-MP embarked on the “Mentorship Lead Programme” with the aim of strengthening the ability of the Provincial Department of Agriculture to provide the necessary support to land reform projects during their post-transfer phase. This project can be seen as bridging the gap between policy at a national level and implementation support at a Provincial level. Therefore it is envisaged that the Mentorship Lead Programme will significantly contribute towards the ability of the Provincial Department of Agriculture to provide the range and depth of support activities necessary to ensure that land reform projects indeed have a positive impact on the transformation objective in rurual Mpumalanga and South Africa as a whole.
The Mpumalanga Department of Agriculture and Land Administration has since entered into an agreement with TRAC-MP in connection with the Mentorship Lead Programme, where both parties have agreed to work together in order to plan and develop an effective and comprehensive post-settlement support structure aimed at land reform projects with commercial farming objectives through the Mentorship Lead Programme. By incorporating research done and lessons learned during the MMMPP project, and by focussing on roughly 24 land reform cases in Mpumalanga, The Mentorship Lead Programme aims to develop a model and system for post-settlement support that could eventually be extended throughout the province and hopefully act as a useful point of departure for future national and provincial policy on this subject.
It was through TRAC-MP's experience with the MMMPP project that two high-priory constraints were identified to post-settlement success, namely problems related to market access as well as problems with securing production capital. With the initiation of the Mentorship Lead Programme, TRAC-MP therefore approached the Trade and Industrial Policy Strategies (TIPS) to co-undertake strategic research on these constraints in order to formulate strategic recommendations that could be incorporated into the Mentorship Lead Programme.
The question that concerns this paper is: how can greater security of tenure increase access to economic opportunities for the poor? Because of the relationship of tenure to property, the primary concern of this paper becomes: how secure access to property can increase economic opportunities for the poor. Rephrased, the concern of this paper is: what routes to increased economic opportunity does property provide and how can this potential be enhanced? Tenure security is about defendable rights and enforceable duties to property and benefits flowing from it and rules, procedures and systems for managing these property rights and duties (Leap, 2005). Secure tenure would enhance that potential. Conversely, insecure tenure would undermine it.
The paper intentionally focuses on 'tenure security, rather than 'title', to accommodate a broader conceptualization of tenure arrangements and economic possibilities, and a more pro-poor perspective, than a more limited focus on tenure form, and title in particular, would allow.
Although the paper incorporates productive uses of land in its consideration of economic opportunities, these are home based. In other words, its focus is on residential property, and potentials for increased economic opportunity associated with it.
Minimum wages have been in place for South Africa's one million domestic service workers since November of 2002. Using data from seven waves of the Labour Force Survey, this paper ocuments that the real wages, average monthly earnings, and total earnings of all employed domestic workers have risen since the regulations came into effect, while hours of work per week and employment have fallen. Each of these outcomes can be linked econometrically to the arrival of the minimum age regulations. The overall estimated elasticities suggest that the regulations should have reduced poverty somewhat for domestic workers, although this last conclusion is the least robust.
In September of 2002 South Africa's roughly one million domestic workers - about 840,000 predominantly African and Coloured women who work as housekeepers, cooks and nannies, and another 180,000 men who work primarily as gardeners - were granted formal labor market protection, including the right to a written contract with their employers, the right to paid leave, to severance pay, and to notice prior to dismissal (Department of Labour, 2002). Employers were also required to register their domestic workers with the Unemployment Insurance Fund (UIF) and to withhold UIF contributions from their paychecks; (since April of 2003 domestic workers have been entitled to unemployment benefits). In November of 2002, a schedule of minimum wages, including time-and-a-half provisions for overtime work, went into effect. The minima were set above the median hourly wages that prevailed at the time, making this a significant intervention in the domestic worker labor market. This paper attempts to determine if these regulations have had any effect on wages, employment levels, hours of work, and the conditions of employment. I find that the regulations do appear to have raised wages: Average nominal hourly wages for domestic workers in September of 2003 were 23% higher than they had been in September 2002, while for demographically similar workers in other occupations the nominal wage increase was less than 5%. Econometric evidence supports the conclusion that the wage increases were caused by the regulations, since the largest increases are seen in places where the greatest number of workers were initially below the minimum wage.
Why is poverty so pervasive in Swaziland despite substantial economic growth achieved through extreme economic openness over several years? Is poverty alleviation in Swaziland a more reachable goal than was in the past, as this country strives to restore rapid economic growth through AGOA facilitating greater insertion into the global commodity market chains? How have macroeconomic developments impacted on poverty within the labour markets, cross-border and domestic alike, and what measures can be taken to improve competitiveness in the labour market? The paper explores these issues by looking into some prominent structures of the labour market regimes in Swaziland from both the cross-border and domestic perspectives. Understanding the relationships between trade, labour market regimes and poverty reproduction is critical for this country, as insufficient analytical attention has been paid on what is happening at their interface. Economic growth has been exceptional over the past years, and the country strives to attract more investors to rip the benefits of African Growth Opportunity Act (AGOA). Yet efforts to reduce the high incidence of poverty affecting most Swazis remain very disappointing, and elusive as inequality of all forms is substantially in rise. The heavy concern put on opening up the national economy to foreign investors has tended to obscure the realities lived on the ground by most of those engaged in making this liberalisation possible: the ordinary Swazis workers. Public considerations at the macroeconomic level seem to have been disconnected from those at the micro-level, as lived by the actors engaged in the cross-border and domestic labour forces.
In this exploratory analysis of household survey data, households' main income sources are used indicators of integration into the South African core economy. Notwithstanding the country's high urbanization rates, the picture of household income generation which emerges is one that disputes common perceptions of the multitude of means by which African households generate their income. The majority of households under scrutiny rely to a large extent on one income source and one income earner. Separate multinomial logit analyses are undertaken for urban and non-urban households. In addition to the divide between urban and non-urban areas, prominent covariates of low core-economy integration are earners of female gender, old or young earner working-age, and low levels of education. Both provincial location and within-provincial, subregional location displays strong impacts. The study also finds associations between main income sources and households' demographic compositions which are compatible to findings both in studies on private transfers behavior and in the growing literature on endogenous household formation in South Africa.
Poverty is multi- faceted and can be manifested in hunger, unemployment, exploitation and lack of access to clean water, sanitation, health-care and education. Poverty is not confined to any one racial group in South Africa, but it is concentrated amongst Blacks, particularly Africans. There is a need to monitor poverty and the poverty alleviation programmes (PAPs) that are in place, to see that the needs of the poor are addressed with the urgency the situation demands and to take corrective actions where mistakes have previously occurred.
Some of the policies of the past, such as segregation and discrimination, left a legacy of poverty and inequality. Up to the early 1990s the apartheid system of the government had PAPs that were biased towards providing health, education and housing services to the White minority to the detriment of the Black majority of the South African population.
The post-apartheid government's agenda is to address poverty and redress inequality amongst all societies. Through its poverty policy framework, the Reconstruction and Development Programme and its macro-economic prescriptions of Growth, Employment and Redistribution policy, the government has implemented new PAPs and extended some of the past programmes to address poverty. It is essential to evaluate these existing and past PAPs to see if they are reducing the poverty gap. This paper would review past PAPs and how effective they were in alleviating poverty and compare this to existing and even the proposed programmes to see if they are reducing poverty. In doing so, the paper will be highlighting the successes and failures of these programmes with a view of coming up with recommendations on how to effectively implement such programmes in future and to avoid repeating the mistakes that occurred previously.
The South African economy is unable to deliver employment for a growing number of would-be workers, especially among the unskilled. There is a need for state intervention to address this failure, and public works have been identified in the national policy discourse as a central policy response, to address both the problem of unemployment, and also a range of social development and economic objectives. This paper offers a critical review of the evidence base available to policy makers on public works, and an assessment of the performance of public works in South Africa since 1996, in response to the question of whether public works can offer a significant response to the South African employment crisis.
With the data currently available it is not possible to show that the anticipated broader benefits of public works programmes in terms of increased livelihoods, reduced poverty, the creation of sustainable employment, community empowerment, local multipliers, or growth as outlined in the policy rhetoric, have been achieved. It is only possible to assess performance in terms of the scale of employment created. By this criterion, success has been limited. The Community Based Public Works Programme, the major national employment creation instrument, created between 13,000 and 33,000 jobs per annum between 1996 and 2001, representing an estimated 1.5 million to 4.5 million workdays per annum, or 0.2 to 0.5% of total unemployed labour days. The scale of employment creation performance has been limited, due to i) the scale of budgetary allocations, (less than one percent of the annual social security and welfare budget), and ii) institutional constraints, relating to programme conceptualisation and design, and project management capacity, in both the public and private sectors. The multiplicity of programme objectives has also contributed to a lack of focus which has reduced the amount of employment generated.
In this paper simple models are used to estimate the impact and fiscal feasibility of 'expanded' public works programmes using the limited data available. The employment creation potential of a R1.2 billion investment in labour intensive construction over three years, is found to represent a maximum of 0.5% of unemployed workdays per annum. The cost to the fiscus of an expanded public works programme able to offer part time employment to a significant number of workers (3.2 million) is found be between R17 and R28 billion per annum.
Irrespective of the fiscal feasibility of this level of expenditure, such a programme is unlikely to meet the wider set of sustainable social development and economic objectives set out in the policy discourse, unless a series of institutional issues relating to project design and implementation are resolved. The limited duration of employment offered under public works may mean that the wage transfer functions as short term income shock, which is consumed, rather than leading to sustained benefits or livelihoods improvements for participants, a problem which is compounded by lack of access to microfinance. Targeting and rationing problems may be leading to a sub-optimal allocation of employment for the intended beneficiary groups, and the selection of appropriate assets for construction and rehabilitation is hindered by the lack of strategic development plans at local level. Limited project management and social development capacity in the public and private sectors is also serving to constrain performance.
In the light of this analysis it is concluded that while public works programmes are a valid component of a social protection policy, an expanded public works programme sui generis is unlikely to have a significant impact on the problems of poverty and labour market access, or their associate, growth, unless the proportion of government expenditure allocated to the programme is substantially increased, and the associated institutional constraints are addressed.