Economic and Development Problems in South Africa and Africa Poverty and Inequality in SA

Aims for these lectures… Absolute vs Relative poverty Measuring Poverty – FGT + understand complexities Lorenz curves Gini coefficient Understand the nature of poverty/inequality in SA Reading – not all information is of equal value

Poverty What is poverty? “Poverty is the inability of an individual or a family to command sufficient resources to satisfy basic needs” (Fields Ch4) Money-metric or multi-dimensional framework? We are looking at money-metric, but MDF in brief: Income and expenditure justified as poverty measure partly because of presumed correlation with well-being and empowerment. Important to understand that money is not end in itself, but means to an end $ correlated with food, shelter, nutrition etc but not well correlated with access to public services, safety, human rights etc Amartya Sen = Godfather

Poverty Absolute vs Relative measure of poverty? Focus axiom: The only thing we need to know about the non-poor are how many there are (poverty not inequality!). Tony Blair was “intensely relaxed” about the millions earned by David Beckham (a footballer) provided that child poverty fell. Absolute vs Relative measure of poverty? $1/day or 30% mean income?

Poverty Measuring poverty? Why do we need to measure it? How do we measure it? Foster Greer Thorbecke (FGT) Poverty Headcount ratio (α = 0) Poverty Gap ratio (α = 1) Poverty Severity ratio (α = 2) Alpha is the coefficient of inequality aversion

If poverty line was at $10, what is P0 ?

Poverty What would a more ‘severe’ distribution look like? P1 ? P2 ? Person A? What would a more ‘severe’ distribution look like? 0.12

Poverty Coudouel, Hentschel & Wodon

Poverty - SA (Leibbrandt et al, 2010)

Poverty-SA (Leibbrandt et al, 2010)

Poverty - SA The average poor South African is a 1) young 2) black 3) girl with 4) little education, 5) living in a large, 6) female-headed, 7) rural household which has 8) low-education 9) no employment and 10) has been affected by AIDS.

South African poverty at a glance Ch4 Transformation Audit 2013 Chapter 4 of the 2013 Transformation Audit

Poverty - SA Impact of social grants on poverty? Labour market – focus for solving inequality? (SVDB).brief explanation of Human Capital Model Growing contribution of G grants 15% (1993) to 29% (2000) 73% (2008) Help break the intergenerational transfer of poverty so decrease in inequality in the future

Poverty - SA Impact of social grants on poverty? “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” (Van der Berg, 2010) Impact of social grants on poverty? Labour market – focus for solving inequality? (SVDB) Growing contribution of G grants 15% (1993) to 29% (2000) 73% (2008) Help break the intergenerational transfer of poverty so decrease in inequality in the future

Poverty SA Has poverty in SA declined? It depends who you ask Survey method vs National accounts Which poverty line? Which distribution? Anchoring to the national accounts Which poverty line to use? Which distribution to use Under-reporting in surveys – rich underreport their income and poor consume non-market goods which aren’t reported

Poverty measurement - sidebar

Poverty - SA

Poverty – SA, the gist Back to Beckham… Poverty has not gone up since the transition Differing views on when and how much it came down Depends which surveys you use, also which method (Survey-method or national accounts anchoring) Common-sense methods are helpful Hunger decreased Back to Beckham…

Inequality

Inequality Calculating the Gini coeficient Gini = (Blue) / (Red) Total equality? Total inequality?

Inequality (Leibbrandt et al, 2010)

Poverty and Inequality (Coudouel, Hentschel & Wodon)

Inequality - SA

Inequality at a glance… Ch4 Transformation Audit 2013

Inequality - SA Between-race inequality has declined < Within-race inequality has grown (especially amongst Africans) < African population important!!

Poverty & Inequality - questions Measurement issues – how to move forward? How to reduce poverty? Economic growth? / Trade? Social transfers? Education? Inequality Is inequality a ‘national’ poverty? Implications for social/economic/political stability?