Department of Economics  Faculty of Economic and Management Sciences Economic and Development Problems in South Africa and Africa Session 8 – Poverty and Inequality in SA

Absolute vs Relative poverty Measuring Poverty – FGT + understand complexities Lorenz curves Gini coefficient Understand the nature of poverty/inequality in SA General knowledge of developing countries (TED video) 2 Aims for today

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 3

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? 4

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) 5

If poverty line was at $10, what is P 0 ? 6 Poverty

7 P 1 ? P 2 ? Person A? What would a more ‘severe’ distribution look like?

Poverty Coudouel, Hentschel & Wodon 8

Poverty - SA (Leibbrandt et al, 2010) 9

Poverty-SA 10 (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. 11

Poverty - SA 12 Impact of social grants on poverty? Labour market – focus for solving inequality? (SVDB)

Poverty - SA 13 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)

Poverty SA Has poverty in SA declined? It depends who you ask Survey method vs National accounts Which poverty line? Which distribution? 14

Poverty measurement - sidebar 15

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Poverty - SA 17

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 18 Back to Beckham…

Inequality 19

Inequality Calculating the Gini coeficient Gini = (Blue) / (Red) Total equality? Total inequality? 20

Inequality 21 (Leibbrandt et al, 2010)

Poverty and Inequality 22 (Coudouel, Hentschel & Wodon)

Inequality - SA 23

Inequality - SA < 24 Within-race inequality has grown (especially amongst Africans) Between-race inequality has declined African population important!!

Poverty & Inequality - questions Poverty Measurement issues – how to move forward? How to reduce poverty? Economic growth? / Trade? (Sess 9) Social transfers? (Sess 10) Education? (Sess 11) Inequality Is inequality a ‘national’ poverty? Implications for social/economic/political stability? Essays?? 25

Quick test.... Which country has the highest child mortality? 1.Sri LankaorTurkey 2.Polandor South Korea 3.MalaysiaorRussia 4.Pakistanor Vietnam 5.ThailandorSouth-Africa 26