Department of Economics

Faculty of Economic and Management Sciences

Economic and Development Problems in South Africa and Africa

Poverty and Inequality in SA

2

Absolute vs Relative poverty Measuring Poverty – FGT

+ understand complexities Lorenz curves Gini coefficient Understand the nature of

poverty/inequality in SA

1. Reading – not all information is of equal value

Aims for these lectures…

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PovertyWhat 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

4

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?

5

PovertyMeasuring 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)

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

Poverty

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Poverty

P1 ? P2 ? Person A?

What would a more ‘severe’

distribution look like?

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Poverty

Coudouel, Hentschel & Wodon

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Poverty - SA

• (Leibbrandt et al, 2010)

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Poverty-SA

• (Leibbrandt et al, 2010)

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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.

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South African poverty at a glance

Ch4 Transformation Audit 2013

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Poverty - SA• Impact of social grants on poverty?• Labour market – focus for solving

inequality? (SVDB).brief explanation of Human Capital Model

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Poverty - SA• Impact of social grants on poverty?• Labour market – focus for solving

inequality? (SVDB)

“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)

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Poverty SA

• Has poverty in SA declined?• It depends who you ask• Survey method vs National accounts• Which poverty line?• Which distribution?

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Poverty measurement - sidebar

1981 1984 1987 1990 1993 1996 1999 2002 20050

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Global Poverty Comparison%

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Poverty - SA

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Poverty – SA, the gist• 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…

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Inequality

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

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Inequality

• (Leibbrandt et al, 2010)

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Poverty and Inequality

(Coudouel, Hentschel & Wodon)

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Inequality - SA

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Inequality at a glance…

Ch4 Transformation Audit 2013

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Inequality - SA

<Within-race inequality has grown (especially amongst Africans)

Between-race inequality has declined

• African population important!!

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Poverty & Inequality - questions • Poverty

• 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?