Inequality, Social Comparisons and Income Aspirations: Evidence from a Highly Unequal Country

Abstract

We investigate the formation of minimum income aspirations in South Africa, a country characterised by high poverty rates and high and rising rates of inequality. Although a few empirical studies have explored income aspirations in South Africa, this is the first study that analyses nationally representative micro-data. We add to the broader empirical literature on income aspirations in two ways. First, we investigate whether there is evidence of aspirations failure among the poor and we test the relationship between aspirations and income inequality. Second, we explore whether aspirations have different associations when social comparisons are drawn with different reference groups. Our analysis of the minimum income question (MIQ) asked in a national household survey from 2008/2009 shows that although aspirations increase significantly with income, the poor are far more likely than the non-poor to report aspirations that exceed current income. The aspirations of both the poor and the non-poor also vary positively (and not negatively) with local levels of inequality, although aspirations respond significantly only to the relative success of others in the same race group.