Inequality and Economic Inclusion

Wednesday, 01 April 2009

Income and non-income inequality in post-apartheid South Africa: What are the drivers and possible policy interventions?

  • Year: 2009
  • Organisation: TIPS
  • Author(s): Haroon Bhorat; Carlene van der Westhuizen; Toughedah Jacobs

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