The dawn of a more equitable society is breaking, according to a United Nations Development Programme paper released this week that shows inequality in workers’ earnings has declined from 2000.
But the light of the new dawn is having about as much effect as shining a torch into a black hole as the slight improvement in earnings inequality has done little to reduce high levels of unemployment and inequality.
Driving growing inequality over this period is unemployment as people leave the rural areas for the urban workforce, pushing down the wages in lower-skilled jobs.
At the same time, relatively high-skilled jobs are seeing wages go up as trade liberalisation creates a bias towards these workers. The returns to workers with low and medium education levels have declined relative to workers with higher education levels.
The paper, The Post-Apartheid Evolution of Earnings Inequality in South Africa, 1995-2004 by Phillippe Leite et al, shows that the inequality in workers’ earnings increased by 14,5% from 1995 to 2004. This figure masks a dramatic increase in inequality by 15,3% from 1995 to 2000 and a decline in inequality by 0,7% from 2000 to 2004.
This has occurred in a country with some of the world’s worst income inequality. Five percent of the richest South Africans are in the richest 10% of the world’s population, while the poorest 5% are among the poorest 10th, according to studies cited in the paper.
The authors find that rising unemployment has a marked impact on increasing inequality and that this is the main reason that earnings inequality has increased. In contrast, unemployment began to level off in 2001 and decreased for the first time in 2004.
The authors argues that unemployment has disproportionately hurt the earnings of workers with lower skills and less education. The majority of these workers are Africans who have migrated from the rural areas.
About one million of the 4,5-million workers who entered the workforce between 1995 and 2000 were previously classified as economically inactive. The labour force participation rates of African women and agricultural workers increased significantly.
But the economy has not grown fast enough to incorporate them and where jobs have been created, they tend to be poorly paid. The influx of workers into the economy drove the unemployment figure up from 1,9-million to 4,2-million between 1995 and 2000.
The influx of low-skilled workers also resulted in an excess supply and decreased their average wages.
African workers as a proportion of total workers have increased from 64% to 72% between 1995 and 2004, but have secured relatively low-paying jobs. This is reflected in the fact that the earnings of African workers have only risen from 60% to 65% of average earnings. In contrast, the average earnings of white workers rose from 230% of the average in 1995 to 269% in 2004.
Additionally, while trade and services have created jobs for workers who have migrated from rural areas, these tend to be in the informal sector and are reaching saturation point.
The authors find that economic growth is also positively correlated with inequality, which they explain as the economy’s failure to generate jobs for low-skilled workers. But since 2000 employment in the formal sector has increased in importance and manufacturing jobs have also grown. They say if this trend continues, it may raise average earnings and draw semi- and low-skilled workers into better jobs.