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Fifteen Years On: Household Incomes in South Africa

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Murray Leibbrandt; James Levinsohn (2010). Fifteen Years On: Household Incomes in South Africa. Working paper (NBER Africa Project).
Type working paper
Scope Post-1994 South African economy
Method econometric
Period studied 1993–2008
Regions South Africa (national)
Themes inequality poverty unemployment, transition post apartheid, labour markets wages, education human capital, macro fiscal finance debt, methods data sources, demography urbanisation
Citation key leibbrandt2010a

Argument

Comparing the 1993 LSMS and the 2008 NIDS, the paper finds that real household per capita incomes rose across almost the whole distribution in the first fifteen post-apartheid years. The gains were modest and unequal, and inequality increased. Semi-parametric DiNardo-Fortin-Lemieux decompositions show that improved endowments (education, urbanisation, smaller households) alone would have produced a broad rightward shift. Changes in returns do little, and the actual gains are concentrated at the bottom and top of the distribution. A with/without simulation suggests the Child Support Grant explains most of the gain in the bottom half. The authors conclude that the labour market, with rising unemployment, offset the gains from improved endowments, and that grants were holding up incomes at the bottom.

Evidence and method

Original source data from the 1993 World Bank LSMS (about 44,000 individuals, 8,800 households) and Wave 1 of the 2008 National Income Dynamics Survey (28,225 individuals, 7,305 households), with income definitions matched and housing excluded. Also uses a logit reweighting regression, kernel density and CDF estimates, unemployment-by-decile figures from Leibbrandt et al. (2010a), and Treasury data on social expenditure.

Findings

  • Mean income rose far more than median income, so gains were concentrated in a small number of very high incomes, especially among Whites. (p. 8)

    While mean income for all South Africans rose about 130 percent from 1993 to 2008, the median income rose just 15 percent over the same period– from R4444 to R5096.

  • Mean log income rose only modestly, in line with the median and with macro GDP-per-capita growth. (p. 8)

    In 1993, the mean log income was 8.44 and it had grown to 8.58 by 2008

  • African household size fell sharply, which is why incomes are normalised per capita. (p. 6)

    In only 15 years, mean household size declined from 5.30 to 3.68.

  • Unemployment rose dramatically over a period of robust GDP growth. (p. 3)

    unemployment has increased from around 15 percent to well over 30 percent

  • The returns counterfactual had very little effect on the household income distribution, unlike the earlier 1995-2000 individual-level results. (p. 16)

    simulating a change in returns for the 1993 distribution had very little impact on the distribution.

  • The CSG is crucial to incomes in the lower half of the distribution; without it many more households would report zero income. (p. 18)

    Indeed, without the CSG, there would have been about three times as many households reporting zero incomes

  • Improved endowments did not translate into broad income gains; something dampened the translation. (p. 20)

    Therefore, something dampened the translation between improved endowments and improved real incomes.

  • The authors cite individual-level evidence that returns to education have shifted adversely, a 'skills twist'. (p. 20)

    there has been a skills twist in the returns to education in South Africa that has lowered the returns to education for all but the highest levels of schooling

  • Unemployment rates rose across all income deciles by 2008, most sharply in the bottom half. (p. 21)

    By 2008 unemployment rates rise across all deciles and they rise particularly sharply in the bottom half of the distribution.

  • Inequality inherited from apartheid has grown further since 1994. (p. 19)

    the very high levels of inequality that apartheid bequeathed the incoming government in 1994 have increased even further.

  • The post-apartheid government expanded social spending while reducing the public debt inherited from the apartheid state. (p. 21)

    daunting public debt that the apartheid state handed over to the new South African democracy