South Africa is ranked one of the most unequal societies in the world. The Conversation Africa spoke to Imraan Valodia, Professor of Economics and Dean of the Faculty of Commerce, Law and Management at the University of the Witwatersrand, about inequality in South Africa.
Has income inequality gotten worse in the last 20 years?
According to most people latest data, South Africa has the highest income inequality in the world, with a Gini coefficient of around 0.67. The Gini coefficient is a widely used statistical measure of how income is distributed among the population of a country. It takes a value between 0 and 1. A coefficient of 1 indicates perfect inequality – where one individual in a country would earn all the income in that country. Conversely, a coefficient of 0 is an indicator of perfect equality, where the country’s income is distributed perfectly equally among all its citizens.
South Africa’s Gini is exceptionally high. A number of other African countries also have high Ginis. For example, Namibia’s is 0.59, Zambia’s 0.57 and Mozambique’s 0.54.
Countries in Europe, especially Scandinavian countries, have much lower Ginis. They vary between 0.24 and 0.27. Among developed countries, the United States has a high level of inequality with a Gini of 0.41.
China’s is 0.38 and India’s is 0.35. Russia’s is similarly relatively low at 0.37. Brazil, like South Africa, has a much higher level of inequality at 0.53.
In South Africa, the evidence suggests that income inequality has increased in the post-apartheid period, although it has fluctuated.
What is clear is that levels of inequality are not decreasing.
What is driving the trend?
There are a number of drivers.
Firstly, the fact that a large number of South Africans are unemployed and report no or very low income. According to the latest quarterly labor force survey, unemployment in South Africa, in June 2023, was appreciated to 32.6%. But this does not include people who have given up trying to find work. (The internationally accepted definition of unemployment requires people classified as unemployed to be looking for work.) If we include these discouraged workers, the unemployment rate rises to 44.1%.
There are approx 40.7 million people in South Africa between the ages of 15 and 64 – this is the group that could potentially work. Those who cannot work because they go to school, are sick or for some other reason are estimated at 13.2 million. That leaves 27.5 million people. Of these, only 16.4 million work.
Of the 16.4 million, only 11.3 million are employed in the formal sector, where incomes tend to be higher.
These figures make it clear that the economy simply cannot generate enough jobs.
The second driving force is that among those who are employed, many have very low wages. Of those who have work, about 3 million people live in the informal economy, where incomes are very low. Another 900,000 people work in agriculture and about 1 million as domestic workers, where incomes are very low.
Even in the formal sector, wages, especially for non-unionised workers, tend to be extremely low.
And third, incomes at the top end of the income distribution are very high. It is more difficult to provide reliable statistics on this, as income for wealthy households tends to come from a variety of sources. One way to get a sense of this is to look at household expenditure – a good proxy for income. Unfortunately, South Africa’s Income and Expenditure Survey is now quite dated. But what is available shows that the richest 10% of South African households account for about 52% of all spending. The poorest 10% of households contribute only 0.8% of all expenditure.
Is South Africa an outlier?
Yes. But there are probably many countries that have higher levels of inequality – we just don’t have the data for them. So while people often say that South Africa has the highest Gini in the world, it would be more accurate to say that South Africa has the highest Gini among countries that have data on income inequality.
South Africa’s data is generally very good, reliable and independent.
What measures have been taken? Why didn’t they work?
The major intervention in post-apartheid South Africa was to address racial inequality. This is of course extremely important. Among other steps, the government introduced the Employment Equity Act to address racial discrimination in employment, and various measures to address ownership by race. There is controversy about some of the measures. Yet evidence suggests they have been a lot successful to change the patterns of inequality in South Africa.
However, not enough has been done – racial inequality remains a real problem. In general, high-income South African households, regardless of race, have fared well over the past three decades, which is why inequality has remained stubbornly high.
What steps should be taken now?
I don’t think there is any policy that would address the issue. Some focus on the labor market and argue that employment is not growing because of job protection. But I believe that this is incorrect and is not about the nuances of the country’s political and economic situation.
I think we should rather think about how we can direct the benefits of economic growth and redistributive policies to benefit those at the bottom. For example, it could be about raising incomes at the bottom, creating new opportunities and employment for those without them, and ensuring that the benefits of growth do not disproportionately benefit those at the top of the income distribution.
What is the difference between income inequality and wealth inequality?
Income inequality measures only part of the real inequality in South Africa. Measuring inequality in wealth gives a more complete picture of how unequal a society is. Income is only one factor that determines wealth. Wealth also includes inheritance, income from assets and so on.
The broad picture is that in South Africa wealth inequality is much worse than income inequality. Some striking statistics are that the top 0.01% of people – just 3,500 individuals – own about 15% of all the wealth in South Africa. The top 0.1% own 25% of the wealth. The net worth of the top 1% is R17.8 million (about $944,000). In contrast, the bottom 50% have a negative wealth position (they have more debt than they have assets) of R16 000 (about US$850).
This article is part of a media partnership between Wits University’s Southern Center for Inequality Studies and The Conversation Africa for the annual Inequality Lecture to be delivered by Professor Branko Milanovic, entitled “Recent changes in global income distribution and their policy implications”. You can register for the event here.
Author: Imraan Valodia – Vice-Chancellor: Climate, Sustainability and Inequality and Director of the Southern Center for Inequality Studies, University of the Witwatersrand, University of the Witwatersrand