Wages and Wage Inequality in South Africa 1994–2011: Part 2 – Inequality Measurement and Trends

• Published date: 01 June 2017
• DOI: http://doi.org/10.1111/saje.12147
• Date: 01 June 2017
• Author: Martin Wittenberg

WAGES AND WAGE INEQUALITY IN SOUTH AFRICA

1994–2011: PART 2 – INEQUALITY MEASUREMENT AND

TRENDS

MARTIN WITTENBERG*

Abstract

We analyse the long-term trends in wage inequality in South Africa, using household survey

data. We show that the trends in household income inequality are largely driven by changes in

wage inequality. Given the detailed nature of our series we show that measurement issues and

breaks in the series need to be dealt with in order to draw robust conclusions from the data.

Most standard inequality measures show that wage inequality has increased over the period.

Nevertheless the choice of measure matters, because there are different trends in different parts of

the distribution. It appears that the distribution below the median has become more compressed,

while the top of the wage distribution has moved away from the median. The inequality in the

labour market translates into even higher inequality in society given that high earners tend to live

together with other high earners while low wage individuals often end up sharing their incomes

with the unemployed. Furthermore there are many South Africans with access to no wage

income. Given the trends analysed here it is not surprising that overall inequality in South Africa

has not come down or has even increased since the end of apartheid.

JEL Classification: C42, D31, J31

Keywords: Gini coefficient, race, survey data, imputation, household inequality

1. INTRODUCTION

South Africa is notorious for its level of inequality. Indeed it is a well-known fact that

South Africa has one of the highest Gini coefficients in the world (see for instance figure

1.3, p. 22 in Atkinson, 2015). The prominence of the Gini coefficient in these discus-

sions is such that South Africa’s National Development Plan lists reducing the Gini coef-

ficient as one of its key objectives (National Planning Commission, 2012, p. 34). In

contrast to the hoped for reduction in inequality in the post-apartheid period,

the accompanying article on wage trends (Wittenberg, in press) suggests that the Gini

* Corresponding author: DataFirst, SALDRU and School of Economics, University of Cape

Town. E-mail: martin.wittenberg@uct.ac.za

Some of the original data work was done with the support of an infrastructure grant to Data-

First from the Redi3x3 project on “Employment/Unemployment, Income Distribution and

Inclusive Growth.” The Vice-Chancellor’s Strategic Fund of the University of Cape Town

paid for the initial construction of the PALMS dataset without which this research would not

have been possible. The ILO commissioned some of the initial analyses of wage trends, which

are reported in Wittenberg (2014a). I would like to acknowledge the helpful comments and

support from Patrick Belser and Kristen Sobeck in that work. Andrew Kerr and Arden Finn

read the original paper carefully and made useful suggestions. I would also like to thank the

editor of the SAJE Steve Koch and two anonymous referees for helpful comments.

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of Economics

coefficient of wage inequality in fact increased over the period 1994–2011. Other authors

(e.g. Leibbrandt et al., 2010) have also commented how stubbornly high the Gini coeffi-

cient has remained since the advent of democracy.

The persistence of high inequality in a context where the institutional underpinnings

of discrimination are being removed serves as one of the key puzzles and challenges of

the post-apartheid era. There are three questions in particular:

How well measured are the inequality trends? Given the measurement issues raised

in the accompanying paper (Wittenberg, in press), what are the implications for the

measurement of inequality? What are the key “stylised facts” about wage inequality

in South Africa?

If the increases in wage inequality are real, how do they relate to inherited inequal-

ities, in particular racial differences and differences in access to human capital?

How do the dynamics in the labour market transmit themselves to income inequal-

ity more generally, given that the latter has traditionally been the primary concern?

In this paper we examine these issues. Our main contribution is threefold. Firstly we

highlight the importance of measurement issues, as we do in the accompanying paper.

Our discussion extends that work in several ways: we show that the wage measurement

issues discussed in that paper matter for the measurement of inequality; in addition we

note that there appears to be a marked break in the wage inequality series between 1997

and 1998; and when considering income inequality there is a major anomaly in the data

for 1999 as there seem to be too many households without any access to income. These

breaks bedevil attempts to analyse trends in inequality over time. We also show that how

one measures inequality matters for the type of trends that one observes; in particular the

“per capita” conversion typically used to “equivalise” incomes within households prob-

ably overstates the extent of inequality.

Figure 1. Different ways of dealing with missing data or the outliers have a marked impact

on the measure of inequality [Colour figure can be viewed at wileyonlinelibrary.com]

299South African Journal of Economics Vol. 85:2 June 2017

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