Galton's fallacy and economic convergence

Friedman (1992) argues that regressing cross-country incomechanges on their final levels can be informative about -convergence(the tendency for the dispersion of income levels to narrow)whereas a similar regression on initial levels of income cannotbe. In this note we show that Bliss's (1999) dismissal of thisargument is in error.     

Education and the natural rate of unemployment

We show how changes in the educational composition of the labourforce affect both the level and the behaviour over time of aggregateunemployment series. We also demonstrate that if it had notbeen for such changes, the US unemployment series would look'European' since the within-group unemployment series all havethat same appearance. We derive a natural-rate model of unemploymentfor two education groups, providing microfoundations for inter-groupdifferences in wages and unemployment, and evaluate its plausibilityin light of microeconomic evidence.     

Getting ahead or falling behind: Findings from the second wave of the National Income Dynamics Study

The National Income Dynamics Study is the first national panel study of South African individuals. Its objective is to track these individuals over time to study social mobility. This paper documents the survey design and a successful recontact record in Wave 2 before providing an overview of the key findings from the other papers in this issue of the journal. Those from the top of the income distribution were hardest to recontact. The papers show that average real incomes grew slightly between 2008 and 2010. However, life satisfaction and expectations of future upward mobility declined. Being unemployed and moving into unemployment is associated with the lowest level of life satisfaction. Aggregate employment did not decline much but there was significant labour-market churn. The National Income Dynamics Study data reveal high levels of grade repetition and a slow transition from school to work. Relocating is shown to be an important part of schooling and employment decisions.     

Sticky Price Models,Durable Goods,and Real Wage Rigidities

The standard two‐sector New Keynesian model with durable goods is at odds with conventional wisdom and vector autoregression (VAR) evidence: Following a monetary shock, the model generates (i) either negative or no comovement across sectoral outputs and (ii) aggregate neutrality of money when durable goods' prices are flexible. We reconcile theory with evidence by incorporating real wage rigidities into the standard model: As long as durable goods' prices are more flexible than nondurable goods' prices, we obtain positive sectoral comovement and, thus, aggregate nonneutrality of money.     

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.     

HOUSEHOLD INEQUALITY AND THE LABOR MARKET IN SOUTH AFRICA

There has been very little detailed exploration of the relationship between wage income and household inequality in South Africa despite the relevance of this issue for many contemporary growth and development policy debates. This article is directed at such an analysis. It uses a decomposition of household income inequality by income components to highlight the dominance of wage income in driving overall income inequality. This is followed by a detailed discussion of the distribution of the unemployed across different wage-earning household categories. Many of the unemployed are seen to depend on wage earners within their households, but a significant percentage of the unemployed, especially in rural areas, have no direct link to labor market earners. In such cases, the creation of employment is essential. The conclusion explores policy implications by linking our empirical findings to South African debates over the quality versus the quantity of employment.     

Valuation of bankrupt firms

This study compares the market value of firms that reorganizein bankruptcy with estimates of value based on management'spublished cash flow projections. We estimate firm values usingmodels that have been shown in other contexts to generate relativelyprecise estimates of value. We find that these methods generallyyield unbiased estimates of value, but the dispersion of valuationerrors is very wide - the sample ratio of estimated value tomarket value varies from less than 20% to greater than 250%.Cross-sectional analysis indicates that the variation in theseerrors is related to empirical proxies for claimholders' incentivesto overstate or understate the firm's value.     

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.     

Exclusive Growth? Rapidly Increasing Top Incomes Amid Low National Growth in South Africa

Despite South Africa’s need for inclusive economic growth, we find that the top income percentiles continue to diverge from the rest of the income distribution. We compare household survey data and tax data (which, unlike household survey data, includes accurate data for the very rich) to investigate the patterns of income growth over the period 2003 to 2018. We find that the gap between the stagnant middle and the top end of the income distribution widened, particularly over the post-recession period. We also show that the divergence was partly driven by high returns to capital for those with top incomes.