Inequality in South Africa: The distribution of income,expenditure and earnings

This article empirically analyses the state of inequality in South Africa. International comparisons show South Africa to be among the most unequal countries in the world. The levels of income inequality and earnings inequality are analysed with a range of measures and methods. The results quantify the extremely high level of inequality in South Africa. Earnings inequality appears to be falling in recent years, with relative losses in the upper-middle parts of the earnings distribution. Decomposing income inequality by factor source reveals the importance of earnings in accounting for overall income inequality. The article concludes by observing that, internationally, significant sustained decreases in inequality rarely come about without policies aimed at achieving that, and suggests that strong policy interventions would be needed to reduce inequality in South Africa to levels that are in the range typically found internationally.     

Describing and decomposing post-apartheid income inequality in South Africa

This paper describes the changes in inequality in South Africa over the post-apartheid period, using income data from 1993 and 2008. Having shown that the data are comparable over time, it then profiles aggregate changes in income inequality, showing that inequality has increased over the post-apartheid period because an increased share of income has gone to the top decile. Social grants have become much more important as sources of income in the lower deciles. However, income source decomposition shows that the labour market has been and remains the main driver of aggregate inequality. Inequality within each racial group has increased and both standard and new methodologies show that the contribution of between-race inequality has decreased. Both aggregate and within-group inequality are responding to rising unemployment and rising earnings inequality. Those who have neither access to social grants nor the education levels necessary to integrate successfully into a harsh labour market are especially vulnerable.     

The unreported income and its impact on Gini coefficient in China

ABSTRACT

Unreported income is an important factor that distorts China’s household income accounting and Gini coefficient calculation. On the basis of comparing NBS household survey data and data from China’s Cash Flow Statement, this paper estimates the size and structure of unreported income in China over recent years. Our study found that about 20% of household disposable income has not been covered by existing household surveys in recent years. In 2015, the omission rate was 19.5%. Operating income and property income have the highest omission rates. Considering that unreported income is primarily owned by high-income people, China’s falling Gini coefficient since 2009 may have resulted from the statistical omission of partial incomes of high-income group. If unreported income is re-included, China’s Gini coefficient would increase by 10 percentage points rather than decrease.     

Welfare measures and the composition of the bottom decile: The example of gender and extreme poverty in South Africa

We examine the composition of the bottom decile in South Africa using three alternative measures of socio-economic status (SES): an asset index, household income per capita and household expenditure per capita. We show that the gender composition of the bottom decile is sensitive to the measure used. We discuss possible reasons for these discrepancies, highlighting gender differences in asset ownership and location. This has implications for the use of asset indices for identifying the poorest members of society.     

Household formation and service delivery in post-apartheid South Africa: Evidence from the Agincourt sub-district 1992–2012

ABSTRACT

South Africa has seen a rapid rate of new household formation since 1994. The same period has also seen an impressive roll-out of housing and services. These interact since new household formation delays the elimination of backlogs. Based on data from the Agincourt study site and a novel decomposition technique we examine the process by which household size has been reduced and suggest that service delivery may actually fuel new household formation.     

The Elasticity of Taxable Income: The Case of South Africa

A key tax policy parameter that has received much attention in the international literature, but about which there is substantial uncertainty, is the overall elasticity of taxable income. The size of this parameter is central to the formulation of tax and transfer policy, as well as for the study of the welfare implications of tax decisions. This paper uses a panel of individual tax returns for the period 2009–2013 and the phenomenon of “bracket creep” to construct instrumental variable estimates of the sensitivity of income to changes in tax rates. Estimates suggest that the overall elasticity of taxable income is approximately 0.3, while that of broad income is significantly lower. The overall response is primarily driven by the elastic response of taxable income for high‐income earners, who have an elasticity of closer to 0.4. Using the elasticity estimates within an optimal tax framework, it is determined that the optimal marginal tax rate for the top 10% of income earners is broadly in line with the current income tax schedule. However, results also suggest that there is little scope for raising marginal rates on high‐income earners further without inducing a negative revenue response.     

The dynamics of household dissolution and change in socio-economic position: A survival model in a rural South Africa

This paper investigates household dissolution and changes in asset wealth (socio-economic position) in a rural South African community containing settled refugees. Survival analysis applied to a longitudinal dataset indicated that the covariates increasing the risk of forced household dissolution were a reduction in socio-economic position (asset wealth), adult deaths and the permanent outmigration of more than 40% of the household. Conversely, the risk of dissolution was reduced by bigger households, state grants and older household heads. Significant spatial clusters of former refugee villages also showed a higher risk of dissolution after 20?years of permanent residence. A discussion of the dynamics of dissolution showed how an outflow/inflow of household assets (socio-economic position) was precipitated by each of the selected covariates. The paper shows how an understanding of the dynamics of forced household dissolution, combined with the use of geo-spatial mapping, can inform inter-disciplinary policy in a rural community.     

The poverty of solidarity: the size and structure of informal income smoothing among worker households in Helsinki, 1928

Abstract

Informal income smoothing by households before the post-Second World War expansion in public welfare has gained attention in the history of poverty and social insurance. Little direct empirical evidence has been available. Finnish household budgets from 1928 with intra-year panel data on informal transactions enable analysis of the use of savings, loans and informal assistance to counter income variation by worker families in Helsinki. Income shares of transfers were small compared with labour-based methods of supplementing the earnings of the surveyed male breadwinner families. Within the year, however, the combined use of assistance, credit, and savings accounts compensated on average 36% of income fluctuations, while means such as added workers or taking in lodgers appeared ineffective on the short run. Informal assistance mattered for the poorest households, but provided inferior coverage compared with that attained through credit and savings by more affluent workers. Income inequality was therefore replicated as risk-management inequality.     

One Kind of Freedom: Poverty Dynamics in Post-apartheid South Africa

A 1993 South African living standards survey documented the legacy of apartheid in the form high levels of inequality and human insecurity. Drawing on a 1998 re-survey of households in the 1993 study, this paper explores whether this legacy has been superseded, or whether apartheid's end has been only one kind of freedom that has left households in a poverty trap from which they cannot escape. After proposing a theoretically grounded dynamic poverty typology that distinguishes stochastic from structural poverty transitions, the paper goes on to estimate that significant numbers of the South African poor are potentially trapped in a structural poverty trap and lack the means to escape poverty over time.     

A reconsideration of what and who is middle class in South Africa

In this paper, we revisit ‘what and who’ is middle class in South Africa using data collected in the 2008 National Income Dynamics Study. First, we consider how to identify the middle class based on two broad definitions adopted in the international economics literature: a middle class defined by the middle share of the national income distribution; and a middle class defined by an absolute level of affluence and lifestyle. We explore alternative ways of capturing the ‘middle income strata’ and we suggest an approach for identifying threshold levels of income associated with middle-class affluence. Second, we show that the size and the composition of the middle class in South Africa are both very sensitive to how the middle class is defined. In particular, we demonstrate that there is very little overlap between the two broad definitions, a finding which reflects very high levels of poverty and inequality in the country.     

The contribution of income components to income inequality in the rural former homelands of South Africa: a decomposable Gini analysis

Households in developing countries adopt livelihood strategiesthat often rely on income from a diversity of sources. Froma policy perspective it becomes important to understand therelative importance of income sources in driving inter-householdinequality and poverty. Recent theoretical advances allow forthe decomposition of the Gini coefficient by income componentsand for an assessment of the impact of changes in income componentson the Gini coefficient. This paper applies such a techniqueto South African data for the rural former 'homeland' areas.In doing so, the paper extends existing knowledge of South Africanincome inequality. Particular attention is paid to integratingthe decomposition work into debates about rural developmentpolicy in South Africa.     

The effect of import competition on labor income inequality through firm and worker heterogeneity in the Japanese manufacturing sector

This study estimates the effects of import competition from Asia on the labor income inequality of Japanese manufacturing workers, considering firm and worker heterogeneity. Parameters are obtained from regression results of annual salary by using constructed worker–establishment panel data. The estimated salary change is positively and negatively larger for higher- and lower-paid workers, respectively, implying that labor income inequality among industry–size–skill–gender groups has increased due to imports from Asia. However, the actual evolution of income inequality during 1998–2014 is not successfully explained by Asian imports: other shocks overshadow import competition to determine actual income inequality.     

Nature and determinants of household retirement savings behaviour in South Africa

This study investigates the savings behaviour among South African households using the General Household Survey data for the periods 2002–04 and 2008–10. The age-cohort analysis shows that households achieve their income peaks when the household heads are in their early forties, earlier than in most other countries. Although initial support for the life-cycle hypothesis framework in the form of smoothed consumption was found from multivariate analysis, a closer examination reveals that the consumption–income ratio is also smooth over the age and cohort variables. This indicates that savings rates do not follow a hump-shape pattern as required in the life-cycle hypothesis framework. While households are seen to be able to maintain their consumption in retirement years through government grants, a large portion of the grants seem to be utilised for savings. This shows that the government grants have the dual effect of sustaining consumption levels while disincentivising savings during working years.     

The factor income distribution in China: 1978–2007

This paper investigates changes in aggregate labor share in China during 1978 and 2007 with a particular focus on the 1995–2007 period during which official statistics report a drop of 12.45 percentage points in labor's share of national income (labor share). Our main findings are: (1) The reported fall in aggregate labor share is overstated. According to the official statistics released by the NBS (2007a), the labor share fell 5.25 percentage points from 2003 to 2004. However this dramatic decline, 42.16% of the total reported decline of the labor share from 1995 to 2007, is completely due to the changes in the way NBS break down the operating surplus state-owned and collective-owned farms and the mixed income of the owners of individual economy; (2) For the last three decades, two main forces have been driving shifts in the aggregate labor share: (i) structural transformation between the agriculture and non-agriculture sectors and (ii) shifts in the labor share within the industry sector; (3) From 1995 to 2003, these two effects are both negative and together drive down aggregate labor share by 5.48 percentage points. The structural change explains 61.31% of the decline and the remaining 38.69% of the decline is due to the changes in the labor share within sectors, primarily in the industry sector; (4) Labor share in agriculture is lower than labor share in services. Therefore, when the service sector grows relative to the agriculture sector in the economy, the aggregate labor share of income declines; and (5) Restructuring of the SOEs and expanded monopoly power are the main reasons for the decline of labor share within industry after 1998. Relative price shifts, the factor input ratio, and biased technological progress are all insignificant forces for this decline because the substitution between factors in the industry sector is nearly unit elastic.     

Concepts and Measures of Saving: Selected Issues for South Africa

South African household savings rates have been declining steadily over the last five decades, raising concerns that the population structurally under‐saves. Against the background of new saving‐enhancing policy initiatives, this paper asks to what extent the concern is founded, and whether the measurement of saving is really appropriate to guide economic policy. Comparing different macroeconomic concepts and measurements of saving, we show that the measure of saving in the national accounts (the residual between income and expenditure) understates the household savings rate compared to other measures. Specifically, an alternative measure from the balance sheets (the change in wealth) yields a significantly higher and non‐declining figure. While households have not been “putting aside” their incomes, they have nevertheless grown richer, driven largely by the appreciation of asset valuations. We also examine the impact of taking non‐financial saving and wealth into account, and conclude that household sector saving on the aggregate is significantly higher than the national accounts suggest. However, these adjusted measures are most relevant for the upper tail of the income and wealth distribution, raising important distributional concerns.     

Evidence of short-term household change in South Africa from the National Income Dynamics Study

We use longitudinal data from the National Income Dynamics Study to document the extent of recent short-term residential and household compositional change in South Africa. We analyse the demographic correlates of these transitions, including population group, age, urban/rural status, and income. We examine educational and labour-market transitions among movers and the prevalence of the four major types of compositional change – births, addition of joiners, deaths, and loss of leavers. We find that short-term household change is prevalent in South Africa. During a two-year period from 2008 to 2010, 10.5% of South Africans moved residence and 61.3% experienced change in household composition. We find that moving is more common among blacks and whites, very young children, young adults, urban individuals, and those with higher incomes. Among non-movers, compositional change is more likely for blacks and coloureds, young adults and children, females, urban individuals, and individuals with lower incomes.     

Economic studies of taxation in Japan: The case of personal income taxes

We argue that tax policy in Japan is on a shaky empirical ground. First, until recently, no serious attempts had been made to estimate labour responses to taxation, especially with respect to prime-age male workers. Second, while there is some stock of empirical analysis on labour supply response of female workers, few studies have appropriately allowed for the budget constraint structure implied by the tax system. Third, as a corollary, there is not a reliable stock of empirical estimates to quantify the frequently employed concepts of “disincentives to work” or “distortion.” Given this state of the literature, we introduce our estimates, and calculate the degree of distortion using the concept of the marginal cost of public funds.     

Social Assistance Amidst the COVID-19 Epidemic in South Africa: A Policy Assessment

In an attempt to minimise the negative economic impacts of COVID-19 on vulnerable households the South African government allocated R50 billion in additional social assistance spending. The cash transfer package included a temporary increase in existing grants and introduced a new “Covid grant.” We assess the chosen package and compare it with an initial proposal to increase the Child Support Grant (CSG). Coverage, cost and welfare effects are calculated to measure the relative impacts in each case. We find that while a significant increase in the CSG delivers resources most progressively, the addition of the COVID-19 grant may potentially reach a much larger group of otherwise uncovered, vulnerable individuals. Critically, this extended coverage comes at a cost to the poorest households, via additional transfers to the upper income deciles. However, we identify several categories of vulnerable household groups which suggests that the workers most negatively affected by the pandemic are not necessarily those in the poorest households. The paper emphasises that social assistance to mitigate the consequences of COVID-19 should not be viewed necessarily as a standard poverty reduction exercise, but rather as an attempt to mitigate COVID-19-related income shocks for the vulnerable who were most negatively affected by the pandemic.     

Assessing gender responsiveness of the Government-wide Monitoring and Evaluation System in South Africa

There is growing recognition of the critical role that National Monitoring and Evaluation Systems can play in achieving sustainable development through enhancing effectiveness, efficiency and sustainability of policies and programmes. The South African government legislated the Government-wide Monitoring and Evaluation System (GWMES) in 2009. The extent of gender responsiveness of the system has not been assessed yet gender mainstreaming ensures that gender needs, realities and issues are consistently and specifically considered in policies, programmes and projects. The study utilises data from document reviews and key informant interviews to assess gender mainstreaming in the National Evaluation Policy (NEP) and the GWMES using a gender diagnostic matrix. Results indicate that the GWMES and NEP rank low in most gender-mainstreaming dimensions. However, the study concludes that existing policies and institutional frameworks if well supported by multiple stakeholders are conducive for effective gender mainstreaming within the GWMES in South Africa.