Social grants no long-term solution for inequality, research shows

Cape Town - Social grants are not a long-term solution to addressing inequality in South Africa, according to Janina Hundenborn, a PhD candidate in the Southern Africa Labour and Development Research Unit at UCT.

“There are not enough South Africans earning ‘liveable wages’...The challenge ahead is to ensure economic growth that can both sustain the continued payment of social grants, as well as bring more people into employment,” she explained.

Research of which she was part, revealed that social grants are a vital source of financial assistance to low-income households. The research used data from the National Income Dynamics Study of the Department of Planning, Monitoring and Evaluation and data from the 1993 Project for Statistics on Living Standards and Development to analyse the development of income inequality over the past 20 years.

“Social grants are a significant mitigating factor, reducing income constraints for households in financial need – a sign that this policy is achieving its desired effect," said Hundenborn.

"In addition, without social grants the level of inequality in South Africa would be much worse than what is currently observed.”

A recent analysis of the lives of thousands of South Africans has revealed that, while on the decline, inequality levels in post-apartheid South Africa continue to be pervasive primarily due to the massive disparity in earnings.

A critical starting point to address inequality will require a more inclusive labour market for all South Africans and with labour market reform that goes beyond wages, according to the findings of Hundenborn and her team.

Based on their research, they propose several policy recommendations. Labour market reform, in the form of job creation, is at the top of the list.

The research team also proposes additional taxes on high earners as another possibility to address income inequality within the labour market. It would also “provide government with the necessary funds to aid their broader redistribution efforts”, suggests Hundenborn.

She emphasised the important role education and vocational training can play in addressing inequality.

“A qualified labour force has a higher earning potential, which in turn increases the income prospects, especially for low-income earners, and drives economic growth overall,” she said.

The research also showed that, despite the large wage gap, most households do receive some form of income from the labour market.

In 1993, the proportion of households receiving income from the labour market was 61% and this increased steadily to 73% in 2014, resulting in the Gini coefficient, which measures inequality, falling slightly over this period.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Yes. We need the money.
11% - 1375 votes
It depends on how the funds are used.
73% - 8899 votes
No. We should have gotten the loan elsewhere.
16% - 1968 votes