Inequality, poverty and prospects for redistribution

Abstract

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.

Keywords:

• inequality
• income distribution
• poverty
• South Africa

Acknowledgement

The author acknowledges the financial support of the National Research Foundation.

Notes

²Note that the log of the mean is not the same as the mean of the logs, and changing the distribution while the mean of income remains unchanged will usually result in a different mean of the log of incomes. Simply put: , where y_i is the income of the ith household, and the left-hand side of the equation represents the log of mean income and the right-hand side the mean of the log of all incomes.

³Some authors (e.g. the World Bank in its World Development Review) report household income, but the method employed throughout for these figures was to compare all individual (per capita) incomes, thus the weight was derived by multiplying the household weights with the population size, as Deaton (1997) suggests.