Inequality, Social Comparisons and Income Aspirations: Evidence from a Highly Unequal Country

Abstract

We investigate the formation of minimum income aspirations in South Africa, a country characterised by high poverty rates and high and rising rates of inequality. Although a few empirical studies have explored income aspirations in South Africa, this is the first study that analyses nationally representative micro-data. We add to the broader empirical literature on income aspirations in two ways. First, we investigate whether there is evidence of aspirations failure among the poor and we test the relationship between aspirations and income inequality. Second, we explore whether aspirations have different associations when social comparisons are drawn with different reference groups. Our analysis of the minimum income question (MIQ) asked in a national household survey from 2008/2009 shows that although aspirations increase significantly with income, the poor are far more likely than the non-poor to report aspirations that exceed current income. The aspirations of both the poor and the non-poor also vary positively (and not negatively) with local levels of inequality, although aspirations respond significantly only to the relative success of others in the same race group.

Keywords:

• Income aspirations
• Adaptation
• Inequality
• Poverty
• South Africa

Acknowledgements

The authors thank the reviewers for their constructive comments on an earlier draft of the paper.

Disclosure Statement

No potential conflict of interest was reported by the authors.

ORCID

Dorrit Posel http://orcid.org/0000-0002-3343-875X

Michael Rogan http://orcid.org/0000-0003-1695-8179

About the Author(s)

Dorrit (Dori) Posel holds the Helen Suzman Chair and is a distinguished professor of Economics at the University of the Witwatersrand. Her areas of specialisation include subjective measures of well-being and poverty, marriage and household behaviour, migration, and household survey design and analysis. Dori holds a PhD in Economics from the University of Massachusetts (Amherst). She has been the recipient of numerous research awards and fellowships, including the Vice-Chancellor’s Research Award in 2005.

Michael Rogan is a Senior Researcher in the Institute of Social and Economic Research at Rhodes University, South Africa. He holds a PhD and a Master’s degree from the University of KwaZulu-Natal in South Africa and a Bachelor of Arts in International Studies from the University of Washington in Seattle. His research over the past five years has focused largely on informal employment, gender, poverty, food security, education and skills development, and survey design.

Notes

1 Statistics South Africa uses the categories Black African, Indian/Asian, Coloured and White to represent the four main population groups in all household surveys and in the Census. We follow this approach and, in our analysis, “Africans” refers to the group “Black Africans”.

2 In contrast, Sacks, Stevenson, and Wolfers (2010) find evidence that countries with more rapid economic growth also experience greater increases in levels of life satisfaction.

3 Compared to households which reported non-zero income, households with zero income have higher average monthly expenditure (R5615.39 compared to R4884.89), although the average difference is not statistically significant.

4 Of the 25 075 households in the LCS sample, 616 households were missing information on the MIQ and 127 households were missing information on the identity of the principal respondent, and they have been dropped from the analysis.

5 http://www.statssa.gov.za/publications/P0141/CPIHistory.pdf.

6 The lower bound poverty line (also in 2011 prices) is R501 monthly per capita household income. Using the same CPI adjustment as above, this results in a lower bound poverty line of R430 monthly per capita income in 2008 prices.

7 Overall, most respondents are the head of the household and have employment, but differences in the employment status of respondents are very marked across poor and non-poor households. In addition to being far less likely to be employed, respondents in poor households also have significantly lower levels of completed education, highlighting the links between education, employment and access to resources in South Africa.

8 When specifications III and IV are rerun at the lower bound poverty threshold, the results are consistent. There are no changes in the direction or level of significance of almost all the coefficients in the table.

9 Because of small sample sizes, we cannot estimate the MIQ regressions with district characteristics for each of the other individual race groups.

10 On average, Africans live in districts where average per capita household income in non-African households is 5076.43 (with a standard error of 23.50) and 1140.42 (3.83) in African households.

11 When the specification controls for within-group inequality among Africans (e.g., by controlling for local level gini coefficients among the African sub-sample only), local inequality is still positively and significantly associated (3.100) with minimum income aspirations. At the same time, while the income of non-Africans in the district remains negatively associated with minimum income, the size of the coefficient (−.063) is much smaller than in the first specification in Table 4 (−0.241).

Additional information

Funding

This work was partly supported by funding received from the National Research Foundation [grant number 115255]. Any opinion, finding and conclusion or recommendation expressed in this material is that of the authors and the NRF does not accept any liability in this regard.