Servaas van der Berg

Trends in Poverty and Inequality since the Political Transition

Using a constructed data series and another data series based on the All Media and Products surveys (AMPS), this paper explores trends in poverty and income distribution over the post-transition period. To steer clear of an unduly optimistic conclusion, assumptions are chosen that would tend to show the least decline in poverty. Whilst there were no strong trends in poverty for the period 1995 to 2000, both data series show a considerable decline in poverty after 2000, particularly in the period 2002-2004. Poverty dominance testing shows that this decline is independent of the poverty line chosen or whether the poverty headcount, the poverty ratio or the poverty severity ratio are used as measure. We find likely explanations for this strong and robust decline in poverty in the massive expansion of the social grant system as well as possibly in improved job creation in recent years. Whilst the collective income of the poor (using our definition of poverty) was only R27 billion in 2000, the grants (in constant 2000 Rand values) have expanded by R22 billion since. Even if the grants were not well targeted at the poor (and in the past they have been), a large proportion of this spending must have reached the poor, thus leaving little doubt that poverty must have declined substantially. However, there are limits to the expansion of the grant system as a meaNS of poverty alleviation, pointing to the importance of economic growth with job creation for sustaining the decline in poverty The data also shows that there is substantial progress in economic terms amongst some Black, who have managed to join the middle class. This expansion was most rapid at the upper end of the income spectrum – Blacks constituted about half the growth of this segment of the consumer market in the period 1995-2004.

South African social security under apartheid and beyond

Under apartheid, the trappings of a welfare state for whites were created. Over time, social security was gradually extended to other groups, and recently social assistance benefits were equalised. This left South Africa with high social security levels for a middle-income developing country. However, the social security system still largely reflects the historical needs of vulnerable white groups under apartheid, among whom unemployment was minimal, given their preferential access to jobs and education. Thus the social security system now has inadequate provision for the most vulnerable, the unemployed. In contrast, four out of five pensioners receive a means-tested social pension — a major poverty-alleviating factor in rural black communities. This article analyses the social security system against the backdrop of apartheid and the more recent democratisation, and assesses its major deficiencies, the forces acting for its expansion and the binding fiscal constraint.

Poverty Trends Since the Transition: What We Know

Using alternative data sources on income and poverty with a shorter time lag makes it possible to discern trends that can inform the policy debate. A strong decline in poverty rates was recorded since 2000. This has since been confirmed by General Household Survey data that showed that the proportion of households with children reporting that their children had gone hungry in the previous year had almost halved between 2002 and 2006. This policy success would not have been tracked using the less regular and more conventional data sources such as the Income and Expenditure Survey of 2000 (IES2000). One successful policy measure – the social grant system – can be clearly identified. Through the child support grants, much of the expansion of the grants system was targeted at children. In contrast, other areas of policy intervention, in particular social delivery in health and education, have been far less successful. This Working Paper is part of longer, ongoing research on poverty and social poverty in the Department of Economics at Stellenbosch University. It first appeared as a publication that attempted to make available some of these research results to a wider public in an accessible and non-technical format.

Low Quality Education as a Poverty Trap

The weak quality of education received by most poor children in South Africa places them in permanent disadvantage relative to those attending the mainly more affluent and better performing schools. This document draws from a large number of studies undertaken for a major project and summarises this evidence, which illustrating that low quality schools act as a poverty trap.

Resource shifts in South African schools after the political transition

Although racial data are no longer available, this article uses a 1997 dataset to compare education spending with the pre-democracy situation. The new government emphasised fiscal resource shifts to eliminate spending discrimination rather than changing educational outcomes. Fiscal resource shifts in education and increased education spending were concentrated in formerly black schools. At the geographic level, non-metropolitan regions gained massively. Yet, as qualified teachers remain scarce in poorer schools, fiscal inequalities have remained, also among black schools. In addition, private resources have considerably supplemented the resources of affluent schools. The large spending shift was mainly a fiscal one (higher teacher salaries in poor schools), although real resource shifts (in pupil/teacher ratios) were not insubstantial. However, poor matriculation results indicate that additional resources, whether fiscal or real, were poorly translated into improved educational outcomes. As equity in education should be measured by equitable educational outcomes rather than equity in educational resource allocation, much work remains to be done.Although racial data are no longer available, this article uses a 1997 dataset to compare education spending with the pre-democracy situation. The new government emphasised fiscal resource shifts to eliminate spending discrimination rather than changing educational outcomes. Fiscal resource shifts in education and increased education spending were concentrated in formerly black schools. At the geographic level, non-metropolitan regions gained massively. Yet, as qualified teachers remain scarce in poorer schools, fiscal inequalities have remained, also among black schools. In addition, private resources have considerably supplemented the resources of affluent schools. The large spending shift was mainly a fiscal one (higher teacher salaries in poor schools), although real resource shifts (in pupil/teacher ratios) were not insubstantial. However, poor matriculation results indicate that additional resources, whether fiscal or real, were poorly translated into improved educational outcomes. As equity in education should be measured by equitable educational outcomes rather than equity in educational resource allocation, much work remains to be done.

Current poverty and income distribution in the context of South African history

This paper describes and analyses current poverty and income distribution in South Africa, with a central concern the relationship between poverty, inequality and growth. The paper also investigates patterns of and trends in poverty and income distribution, a literature with a long and distinguished history. Drawing from recent literature in this regard, the paper shows that the labour market – rather than access to wealth or to political and fiscal power – currently sets the limits to redistribution. Wage inequality, deeply rooted in South Africa’s history, plays a central role in overall income distribution, and patterns of human capital development are fundamental to the future growth path and therefore to poverty and income distribution. The paper therefore concludes that reducing inequality substantially is currently unlikely without a massive increase in the human capital of those presently poor, but that prospects in this regard are inauspicious.

Differentiation in black education

Based on a graphical and statistical analysis of 1993 survey data, this article shows that educational inequalities among black school-age children were substantial and systematically associated with socio-economic status. Children of more affluent, better educated and metropolitan parents progressed better in schools, thus attaining higher levels of education, and also outperformed others who had progressed as far in terms of cognitive outcomes (measured by literacy and numeracy test scores). Thus, educational inequalities may become enduring, as the ability to benefit from education is usually transmitted across generations (better educated individuals obtain better jobs, and their children are again better educated). The abysmal educational quality of the largest part of the school system therefore has to be improved drastically, to allow poor children to overcome their socio-economic deficits and to benefit from education.

The Present as a Legacy of the Past: The Labour Market, Inequality and Poverty in South Africa

This paper provides an analysis of poverty in South Africa by focussing on the labour market. Gauteng, South Africas economic powerhouse, has long been dependent on immigration to supply its labour requirements, a phenomenon deeply rooted in the provinces early economic history and the development of mining and heavy industry. As far as possible, the analysis compared in-migrants to non-migrants and intra-Gauteng migrants in order to provide insight into special benefits or challenges that in-migrant households may present. The Labour Force Survey module on migrant labour allowed the profiling of migrant labourers and the approximation of economic links between Gauteng and other provinces as represented by remittances.

Inequality, poverty and prospects for redistribution

This paper demonstrates that poverty and inequality trends can diverge. It then discusses inequality trends and shows that, despite measurement issues, there is consensus that inequality is very high and has been rising over much of the post-transition period. Due to rising inequality within all groups, and particularly the black population, and lower inequality between race groups, within-group inequality has become the dominant form of inequality. That does not, however, detract from the fact that inequality between groups is still very large. High income inequality largely stems from inequality in access to wage income, due more to wage inequality than to unemployment. A Gini coefficient for wage income amongst the employed of above 0.60 effectively sets a floor to overall income inequality. The high wage premium to educated workers derives from a combination of a skills shortage at the top end of the educational spectrum, driving up their wages, and a surfeit of poorly-educated workers competing for scarce unskilled jobs dampening unskilled wages; if the unemployed were to find jobs, it would be in this bottom part of the wage distribution, and consequently this would not much reduce wage inequality. A continuation of the historical pattern whereby only a small segment of the population obtained good schooling would leave the structures underlying the large wage premium unaltered. The time frame for substantial inequality reduction is thus necessarily a long one, while poverty reduction efforts should not wait for this to occur.This paper demonstrates that poverty and inequality trends can diverge. It then discusses inequality trends and shows that, despite measurement issues, there is consensus that inequality is very high and has been rising over much of the post-transition period. Due to rising inequality within all groups, and particularly the black population, and lower inequality between race groups, within-group inequality has become the dominant form of inequality. That does not, however, detract from the fact that inequality between groups is still very large. High income inequality largely stems from inequality in access to wage income, due more to wage inequality than to unemployment. A Gini coefficient for wage income amongst the employed of above 0.60 effectively sets a floor to overall income inequality. The high wage premium to educated workers derives from a combination of a skills shortage at the top end of the educational spectrum, driving up their wages, and a surfeit of poorly-educated workers competing for scarce unskilled jobs dampening unskilled wages; if the unemployed were to find jobs, it would be in this bottom part of the wage distribution, and consequently this would not much reduce wage inequality. A continuation of the historical pattern whereby only a small segment of the population obtained good schooling would leave the structures underlying the large wage premium unaltered. The time frame for substantial inequality reduction is thus necessarily a long one, while poverty reduction efforts should not wait for this to occur.

Efficiency and Equity Effects of Social Grants in South Africa

This paper discusses the nature and effects of social grants programmes in South Africa against the backdrop of international trends in the reform of social assistance systems. It shows that South Africa has a well-developed social assistance system that significantly reduces extreme poverty, in part because the grants are very well targeted. The review of existing literature and new evidence presented in this paper suggest that the grants influence the behaviour of recipients and potential recipients in various ways, not all of which are necessarily benign. The paper also highlights the scope for further research on the potential of workfare programmes, conditional cash transfer programmes and other innovative social assistance schemes in the South African context.