Income and Non-Income Inequality in Post-Apartheid South Africa: What are the Drivers and Possible Policy Interventions?

Abstract

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 enables us to examine changes in inequality over the decade 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 ensuring that South Africa’s economic growth results in significant declines in household poverty levels. This study has two main objectives. Firstly, the study aims to identify the drivers of the reproduction of inequality in post-apartheid South Africa. The second objective is to examine what policy levers are available to help mitigate the impact of increased inequality in South Africa. Based on the identification of what is driving the increasing levels of inequality, appropriate policy interventions, including assessing the impact and sustainability of existing policies such as the increased provision of social grants, will be evaluated. We find that not only has income inequality remained high for the period under review, but it has also increased significantly between 1995 and 2005. Throughout the time period wage inequality has been the main contributor to the growing income inequality. For a more holistic representation of inequality, we consider the effect of increased public and private assets on non-income inequality. We find that there has been a universal decrease in non-income inequality in South Africa. We also find that the effect of income inequality has been to dampen growth, specifically pro-poor growth. While we found that social transfers have little effect on income inequality when we decomposed the various sources of income, when grant income is excluded as a source of income from total income we find that it is an extremely important supportive source of income and without it many households would experience negative income growth.