Understanding and Tackling Persistent Inequality Murray Leibbrandt IFAA Confronting Inequality Engagement Thursday 28 September 2017

There is a Lack of Social Mobility in South Africa The DPME’s National Income Dynamics Study has been tracking the same 28000 South Africans every two years since 2008 It shows (see the slide) that a large group of South Africans (29%) are trapped in deep (severe) poverty. Another group of just over 20% are never in poverty (21%) Any social mobility we have is really about those in between who are moving into and out of poverty over time. This is a precarious mobility with high probabilities of moving across the poverty line with each visit and low probabilities of moving away from poverty permanently.

Income Dynamics (or the lack thereof) in Contemporary South Africa   2014 2008 Severe Poor Non-poor 28.7% 13.0 11.5 5.5 6.5 8.0 2.3 3.4 21.1

Lack of Mobility (cont) This picture is backed up by research that models South Africa’s income class structure based on the probability of staying or moving into poverty. Expenditure changes are modelled based on location, household demographics, assets and labour market status. The modelling shows: Half of South Africans are always poor A further 25% are precariously vascilating into and out of poverty Only 20% of South Africans have moved far enough away from poverty to be able to make longer run decisions to invest in their children’s schooling or in housing. We call these the middle class. This is not a burgeoning black middle class! Just less than 5% of South Africans are miles away from poverty, materially and in their decision making. We call these the elite.

South Africa’s five social classes, 2008 and 2014/15

This persistence underpins very low levels of intergenerational income mobility The same kind of modelling has been applied to intergenerational mobility Comparing parents to their children there has been some upward mobility in education, health and services But there is a devastating lack of income mobility The slide shows that: Children of parents who are at the bottom of earnings distribution have a 95% chance of occupying the same place in the distribution. Disadvantage is being passed on. Moving to the top of the distribution, advantage is being passed on too with close to a 60% chance of these children being at the very top of the earnings distribution like their parents.

Intergenerational Failure

Why? The next slide tells you how a youth indaba captured their contemporary reality (Click on the arrow!)

How a Youth Indaba described their reality low quality schooling no access to post school education limited access to productive social networks income poverty unemployment lack of affordable transport limited access to information & connectivity inadequate housing & basic services fragile families poor health & safety

What do we do about this? Implicit in the modelling is a social system that we can think about in terms of a micro reality and a macro reality and their interactions. It clear that both need to be addressed to break these pernicious cycles. See the slide

Why the persistence? Micro level traps Structural (legacy) and Macro factors Given our history we need to address our legacy of structural inequality: Spatial Inequality Land and Housing Wealth and other Assets And the broader policy environment: Financial Markets Industrial Policy and Capital markets Tax and expenditure policy Social Safety Nets and Social Security Macroeconomic Considerations

Conclusions The focus is not on income versus wealth versus education versus health. It has to be multidimensional as this is how inequalies work We need to focus on persistence, traps and equality of opportunities The challenge is to twin the long run perspective (Wealth, Assets) with the shorter-run views (especially labour market dynamics) and actual livelihoods (Structure versus Agency)

Conclusions Cracking this is going to require a cross-policy lens with a focus on their interactions Tax policy is important (income but also wealth and inheritance) Quality social expenditures are crucial So too is: Competition policy Financial Regulation, and Labour Market Policy