Socio-Economic Inequality of Wellbeing: A Comparison of Switzerland and South Africa

Abstract

The study seeks answers to the broader question on the income-wellbeing nexus through a seldom utilised technique of concentration index to measure income related wellbeing inequality. The analysis is undertaken in the vastly differing income and income inequality contexts of Switzerland and South Africa to contrast the relationships in different scenarios over a 10-year period. The study brings forth the findings that wellbeing is concentrated among the higher end of the income distribution in both countries but that the level of wellbeing concentration is lower in Switzerland as compared to South Africa. The Oaxaca–Blinder decomposition of the Erreygers-corrected concentration index indicates that the differences in the wellbeing concentration levels of the two countries are due to both the difference in the levels of income as well as the differences in the marginal utility of income in the two countries. Results indicate that South Africa’s pro-rich concentration of wellbeing would decrease substantially with Swiss endowments. On the other hand, income based concentration of wellbeing would increase in South Africa with Swiss coefficients. The differences in the coefficients of absolute and relative income, contribute more to the differences in wellbeing concentration in the two countries than the levels of these variables. This indicates that the level of income and relative income is important in understanding the impact of these variables on wellbeing inequality. Further, the decomposition analysis of the concentration index for each country to understand the relative importance of variables indicates that while relative income is a significant driver of wellbeing inequality in South Africa and Switzerland, its importance is lower than absolute income in determining the concentration of wellbeing.