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Bureau for Economic Research (BER) University of Stellenbosch: Department of Economics

Trends in poverty and inequality since the political transition*

Servaas van der Berg, Ronelle Burger, Rulof Burger, Megan Louw, Derek Yu

Bureau for Economic Research (BER), University of Stellenbosch: Department of Economics

30 September 2005

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One of the largest policy debates in South Africa currently revolves around the issue of whether or not poverty and inequality have been reduced since political transition. When it initially came into power in 1994, the new government was tasked with alleviating widespread poverty within the context of high unemployment rates and – at that time – a stagnant economy. Much of the research conducted on household survey data collected by Statistics South Africa has shown increasing poverty and inequality during the second half of the 1990s (see for instance Hoogeveen & Цzler 2004; Leibbrandt, Levinsohn & McCrary 2005; UNDP 2003).

Since the turn of the century, however, an expanded social grant system and improving labour market prospects have had major impacts on poverty reduction. During the past four years, government has increased grant payments by R22 billion in 2000 Rand values: an increase of more than 70 per cent in real terms. While this is impressive and particularly good news for the poor, social assistance is nearing the boundaries of its ability to alleviate poverty. Job creation is an alternative poverty reduction device, and one that appears to have brought rewards in the last few years – particularly for the black population. Even though many of the poorest are unskilled, expanding jobs would bring much more income to those who are presently poor, raising them above the poverty line and allowing them to shift into higher income deciles. As will be shown later in this paper, jobs are surprisingly well targeted at the poor, assuming that present characteristics of employed workers fairly represent the characteristics that are sought by potential employers. However, if the skill content of jobs continues to rise, the beneficial impact of new jobs on those presently poor may be reduced. Naturally, further expansion of jobs and social grants is made more likely if there is high economic growth, which however also tends to increase the size of wage and property income. This benefits those individuals who already have access to such income sources. Consequently economic growth has considerable poverty-reducing potential in the South African context, though the direction of its impact on income inequality is uncertain.

This study tracks trends in the South African income distribution over the past decade and a half, with a particular focus on poverty trends in the post-transition period. It builds on previous work by Van der Berg and Louw (2004) and so also constructs time series estimates of the income distribution using a number of data sources, including both household surveys and national accounts data. The aim of this exercise is to arrive at estimates of recent trends that are as reliable as the available data permit, to enable us to make a confident contribution to the current literature on the path of poverty and inequality in modern South Africa. The assumptions used throughout the study are those likely to yield the lowest estimates of poverty reduction that the national accounts data support. Thus our estimates are also purposely biased towards recording the least rather than the most likely estimates of income growth for the black population, since this group contains the majority of the poor. Also, despite reservations that we have about some spikes in the data obtained from official surveys (in particular the high levels of wages recorded for particularly the black population in 1995 and the low levels recorded for 2000), we do not adjust for these and instead use the most conservative estimates of black wages. Thus our estimates probably overstate poverty compared to estimates that also adjust data to be commensurate with the national accounts. It is also possible that we only record a downward trend in poverty a little later than it actually commenced. This may partly account for the steepness of this trend we find.

    * The research was commissioned by gtz-German Agency for Technical Co-operation

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