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South Africa/USA: Inequality is Extreme and Still Rising
January 15, 2018 (180115)
(Reposted from sources cited below)
"I came here because of my deep interest and affection for a land settled by the
Dutch in the mid-seventeenth century, then taken over by the British, and at last
independent; a land in which the native inhabitants were at first subdued, but
relations with whom remain a problem to this day; a land which defined itself on a
hostile frontier; a land which has tamed rich natural resources through the energetic
application of modern technology; a land which once imported slaves, and now must
struggle to wipe out the last traces of that former bondage. I refer, of course, to
the United States of America." - Robert F. Kennedy, University of Cape Town, June 6,
More than 50 years after Robert Kennedy's speech in Cape Town, there have been
many victories in the fight for political rights and against racial discrimination
in both South Africa and the United States. The sacrifices and victories of those
decades should not be discounted.
Nevertheless, despite the advance of many African Americans and Black South Africans
into positions of power and wealth, the inequality inherited from that history
remains deeply imprinted in the society and the economy. Its effects are felt not
only in the explicit racial inequalities that still exist, but also in the
ideologies rationalizing inequality more generally and legitimizing structural
inequalities as the allegedly deserved outcome of individual achievement.
The World Inequality Report, just released, documents with the best data available on the
trends of inequality at global and national levels, a necessary but of course insufficient
step in finding remedies to reverse the trend of increasing inequality and to repair
the damages still felt from historical inequities.
This AfricaFocus Bulletin contains excerpts from the chapters on South Africa
and the United States from the new World Inquality Report. Excerpts from the
executive summary of the report appear in another AfricaFocus Bulletin sent out
today and available at http://www.africafocus.org/docs18/ineq1801.php.
For previous AfricaFocus Bulletins on South Africa, visit
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World Inequality Report 2018
Trends in global income inequality
For the full report, database, and extensive additional background information, visit
2.12: Income inequality in South Africa
- South Africa stands out as one of the most unequal countries in the world. In 2014,
the top 10% received 2/3 of national income, while the top 1% received 20% of
- During the twentieth century, the top 1% income share was halved between 1914 and
1993, falling from 20% to 10%. Even if these numbers must be qualified, as they are
surrounded by a number of uncertainties, the trajectory is similar to that of other
former dominions of the British Empire, and is partly explained by the country's
economic and political instability during the 1970s and 1980s.
- During the early 1970s the previously constant racial shares of income started to
change in favor of the blacks, at the expense of the whites, in a context of
declining per capita incomes. But while interracial inequality fell throughout the
eighties and nineties, inequality within race groups increased.
- Rising black per capita incomes over the past three decades have narrowed the
interracial income gap, although increasing inequality within the black and
Asian/Indian population seems to have prevented any decline in total inequality.
- Since the end of Apartheid in 1994, top-income shares have increased
considerably. In spite of several reforms targeting the poorest and fighting the
segregationist heritage, race is still a key determinant of differences in income
levels, educational attainment, job opportunities and wealth.
South Africa's dual economy is among the most unequal in the world
South Africa is one of the most unequal countries in the world. In 2014, the top 10%
of earners captured two thirds of total income. This contrasts with other high-income
inequality countries such as Brazil, the United States and India where the top 10% is
closer to 5055% of national income. However, unlike other highly unequal countries,
the divide between the top 1% and the following 9% in South Africa is much less
pronounced than the gap between the top 10% and the bottom 90%. Otherwise said, in
terms of top income shares, South Africa ranks with the most unequal Anglo-Saxon
countries, but, at the same time, there is less concentration within the upper income
groups, mostly composed by the white population. The average income among the top 1%
was about four times greater than that of the following 9% in 2014 (for comparative
purposes, the top 1% in the United States earn seven times more than the following
9%), while average income among the top 10% was more than seventeen times greater
than the average income of the bottom 90% (it is eight times more in the United
States). It is then only logical that the income share of the top 1% is high,
capturing 20% of national income, though this is not the largest share in the world.
The South African "dual economy" can be further illustrated by comparing South
African income levels to that of European countries. In 2014, the average national
income per adult among the richest 10% was 94 600, at purchasing power parity, that
is, comparable to the average for the same group in France, Spain or Italy. But
average national income of the bottom 90% in South Africa is close to the average
national income of the bottom 16% in France. In light of these statistics, the
recently debated emergence of a so-called middle class is still very elusive. Rather,
two societies seem to coexist in South Africa, one enjoying living standards close to
the rich or upper middle class in advanced economies, the other left behind.
Inequality has decreased from the unification of South Africa to the end of
South Africa is an exception in terms of data availability in comparison with other
African countries. The period for which fiscal data are available starts in 1903 for
the Cape Colony, seven years before the Union of South Africa was established as a
dominion of the British Empire, and ends in 2014, with some years sporadically
missing, and noticeably an eight- year interruption following the end of apartheid in
1994. As is often the case with historical tax data series, only a very small share
of the total adult population was eligible to pay tax in the first half of the
twentieth century. Therefore, the fiscal data from which we can estimate top-income
shares allows us to track the top 1% income share since 1913, but only cover the top
10% of the population from 1963 (with a long interruption between 1971 and 2008).
With important short run variations, the evolution of income concentration over the
19131993 period seems to follow a very clear long-term trend. The income share of
the richest 1% was more than halved between 1913 and 1993, falling from 22% to
approximately 10%. Not only did the income share attributable to the top 1% decrease,
but inequality within this upper group was also reduced. Indeed, the share of the top
0.5% fell more quickly than the share of the next 0.5% (from percentile 99 to
percentile 99.5). Consequently, while the top 0.5% represented about 75% of the top
1% in 1914, by the end of the 1980s, their representative proportion fell to 60%.
Despite the extreme social implications of the first segregationist measures that
were implemented in the early 1910s, these policies did not lead to large increases
in income concentration among the top 1%. This was also a time in which South Africa
progressively developed its industrial and manufacturing sector, enjoying notable
accelerations in the 1930s that were to the benefit of the large majority of the
population. Aside from a brief fall during the Great Depression, average real income
per adult then increased steadily. Following a trend similar to other former
Dominions of the British Empire (Australia, Canada and New Zealand) inequality
decreased significantly in South Africa from 1914 to the beginning of the the Second
World War, despite some short-run variations in the late 1910s: the income share of
the top 1% fell from 22% to 16%.
During the Second World War, national average continued to follow its previous trend,
but the average real income of the richest 1% took off. As a consequence of the
demand shock during the war, the agricultural export prices boomed, the manufacturing
sector more than doubled its output between 1939 and 1945, and profits for the
foundry and engineering industries increased by more than 400%. However, the wage
differential between skilled/white and unskilled/black workers remained extremely
large. As C.H. Feinstein described, "black workers [were] denied any share of the
growing income in the new economy they were creating." The fact that the peak in the
income share of the top 1%--as high as 23% in 1946--was concomitant with the war
effort thus seems essentially due to a brief enrichment of the upper class.
In contrast, income growth in the 1950s was more inclusive, as average real income
per adult increased by 29% between 1949 and 1961, while the average real income of
the top 1% slightly decreased. By 1961 the income share of the top 1% had fallen to
around 14%. In the 1960s, both averages grew approximately at the same rate such that
inequality remained relatively constant. Following 60 years of successive increases,
national average income was almost four times greater by the early 1970s than in
1913. Inequality resumed its downward sloping trend from 1973, but this also marked a
period of overall income growth stagnation in South Africa until 1990 that culminated
in a three-year recession.
For the first time in the previous 90 years, gold output started falling. Richer
seams were exhausted and extraction costs increased rapidly. The industry that was
once the engine of the economy started to weaken. Increases in oil prices and other
commodities accelerated inflation dramatically, averaging about 14% per year between
1975 and 1992. In the 1980s, international sanctions and boycotts were placed on
South African trade as a response to the apartheid regime, adding further pressure to
that created by domestic protests and revolts, and contributed to the destabilization
of the regime in place. White dominance was challenged on both economic and political
grounds, to which the ruling government progressively made concessions, recognizing
trade unions and the right to bargain for wages and conditions; this could partly
explain why the average real income per adult of the top 1% decreased faster than the
The progressive policies implemented after apartheid were not sufficient to
counter a profoundly unequal socio-economic structure
There are no fiscal data to estimate top-income shares for the eight years that
followed 1993. However, joining up the data points to the next available figure in
2002 suggests that income inequality has increased sharply between the end of
apartheid and the present, even if the magnitude of the increase must be taken with
caution, as the estimates in these two periods may not be totally comparable. The
income share of the top 1% increased by 11 percentage points from 1993 to 2014. Part
of the increase from 1993 to 2002 should come from changes in the tax code. In
particular, before 2002, capital gains were totally excluded, which is very likely to
downward bias the share of top-income groups. Also, the tax collection capabilities
seem to have increased substantially in the last years. That being said, household
survey data for the years 1993, 2000 and 2008 research has demonstrated that
inequality increased significantly during the period for which we have no fiscal
At first, it might seem puzzling that the abolishment of a segregationist regime was
followed by an aggravation of economic inequality. The establishment of a multiracial
democracy, with a new constitution and a president of the same ethnic origin
as the majority of the population, did not automatically transform the inherited
socio-economic structure of a profoundly unequal country. Interracial inequality did
fall throughout the eighties and nineties, but inequality within race groups
increased: rising black per capita incomes over the past three decades have narrowed
the black-white income gap, although increasing inequality within the black and
Asian/Indian population seems to have prevented any decline in aggregate inequality.
In explaining these changes scholars agree in that the labor market played a dominant
role, where a rise in the number of blacks employed in skilled jobs (including civil
service and other high-paying government positions) coupled with increasing mean
wages for this group of workers.
Since 1994, several redistributive social policies have been implemented and/or
extended, among which important unconditional cash transfers targeting the most
exposed groups (children, disabled and the elderly). At the same time, top marginal
tax rates on personal income were kept relatively high and recently increased to 45%.
However, in spite of these redistributive policy efforts, surveys consistently show
that top-income groups are still overwhelmingly white. Other studies further
demonstrate that such dualism is itself salient along other key dimensions such as
unemployment and education. Furthermore wealth, and in particular land, is still very
unequally distributed. In 1913, the South African parliament passed the Natives Land
Act which restricted land ownership for Africans to specified area, amounting to only
8% of the country's total land area, and by the early 1990s, less than 70 000 white
farmers owned about 85% of agriculture land. Some land reforms have been implemented,
but with seemingly poor results, and it is likely that the situation has not improved
much since, although precise data about the recent distribution of land still needs
to be collected.
Given this socio-economic structure, the interruption of the international boycotts
in 1993 might have more directly favored a minority of high skilled and/or richer
individuals who were able to benefit from the international markets, which therefore
contributed to increase inequality. This hypothesis would also explain the fact that
income inequality in South Africa did not increase in the 1980s, while boycotts were
put in place, contrary to other former Dominions (New Zealand, Canada and Australia)
despite the country having so far followed a similar trend. Furthermore, the
implementation of the Growth, Employment and Redistribution (GEAR) program in 1996,
which consisted of removing trade barriers, liberalizing capital flows and reducing
fiscal deficit might also have contributed, at least in the short run, to enrich the
most well off while exposing the most vulnerable, in part by increasing returns to
capital over labor and to skilled workers over unskilled workers.
The rapid growth experienced from the early 2000s until the mid-2010s was essentially
driven by the rise in commodity prices and was not accompanied with significant job
creation as the government hoped it would. The income share of the top 1% grew from
just less than 18% in 2002 to over 21% in 2007, then decreased by about 1.5
percentage points and increased again in 20122013 as prices reached a second peak.
The fact that these variations closely mirror the fluctuation in commodity prices
suggest that a minority benefiting from resource rents could have granted themselves
a more than proportional share of growth.
Lastly, it should be stressed that the top 1% only represents a small part of the
broader top 10% elite which is mostly white. While the share of income held by the
top 1% is relatively low as compared to other high inequality regions such as Brazil
or the Middle East, the income share of the top 10% group is extreme in South Africa.
The historical trajectory of the top 10% group may be different to that of the top
1%--potentially with less ups and downs throughout the 20th century. Unfortunately at
this stage, historical data on the top 10% group does not go as far back in time as
for the top 1% group."
2.4 Income inequality in the United States
- Income inequality in the United States is among the highest of all rich countries.
The share of national income earned by the top 1% of adults in 2014 (20.2%) is much
larger than the share earned by the bottom 50% of the adult population (12.5%).
- Average pre-tax real national income per adult has increased 60% since 1980, but it
has stagnated for the bottom 50% at around $16 500. While post-tax cash incomes of
the bottom 50% have also stagnated, a large part of the modest post-tax income growth
of this group has been eaten up by increased health spending.
- Income has boomed at the top. While the upsurge of top incomes was first a laborincome
phenomenon in 1980s and 1990s, it has mostly been a capital- income phenomenon
- The combination of an increasingly less progressive tax regime and a transfer
system that favors the middle class implies that, even after taxes and all transfers,
bottom 50% income growth has lagged behind average income growth since 1980.
- Increased female participation in the labor market has been a counterforce to
rising inequality, but the glass ceiling remains firmly in place. Men make up 85% of
the top 1% of the labor income distribution.
Income inequality in the United States is among the highest of rich
In 2014, the distribution of US national income exhibited extremely high
inequalities. The average income of an adult in the United States before accounting
for taxes and transfers was $66 100, but this figure masks huge differences in the
distribution of incomes. The approximately 117 million adults that make up the bottom
50% in the United States earned $16 600 on average per year, representing just onefourth
of the average US income. As illustrated by table 2.4.1, their collective
incomes amounted to a 13% share of pre-tax national income. The average pre-tax
income of the middle 40%--the group of adults with incomes above the median and below
the richest 10%, which can be loosely described as the "middle class"--was roughly
similar to the national average, at $66 900, so that their income share (41%) broadly
reflected their relative size in the population. The remaining income share for the
top 10% was therefore 47%, with average pre-tax earnings of $311 000. This average
annual income of the top 10% is almost five times the national average, and nineteen
times larger than the average for the bottom 50%. ...
Income is very concentrated, even among the top 10%. For example, the share of
national income going to the top 1%, a group of approximately 2.3 million adults who
earn $1.3 million on average per annum, is over 20%--that is, 1.6 times larger than
the share of the entire bottom 50%, a group fifty times more populous. The incomes of
those in the top 0.1%, top 0.01%, and top 0.001% average $6 million, $29 million, and
$125 million per year, respectively, before personal taxes and transfers.
As shown by Table 2.4.1 , the distribution of national income in the United States in
2014 was generally made slightly more equitable by the country's taxes and transfer
system. Taxes and transfers reduce the share of national income for the top 10% from
47% to 39%, which is split between a one percentage point rise in the post-tax income
share of the middle 40% (from 40.5% to 41.6%) and a seven percentage point increase
in the post-tax income share of the bottom 50% (from 12.5% to 19.4%). ...
National income grew by 61% from 1980 to 2014 but the bottom 50% was shut off
Income inequality in the United States in 2014 was vastly different from the levels
seen at the end of the Second World War. Indeed, changes in inequality since the end
of that war can be split into two phases, as illustrated by Table 2.4.2 . From 1946
to 1980, real national income growth per adult was strong--with average income per
adult almost doubling-- and moreover, was more than equally distributed as the
incomes of the bottom 90% grew faster (102%) than those of the top 10% (79%).
However, in the following thirty-four-year period, from 1980 to 2014, total growth
slowed from 95% to 61% and became much more skewed.
The pre-tax incomes of the bottom 50% stagnated, increasing by only $200 from $16 400
in 1980 to $16 600 in 2014, a minuscule growth of just 1% over a thirty-four-year
period. The total growth of post-tax income for the bottom 50% was substantially
larger, at 21% over the full period 19802014 (averaging 0.6% a year), but this was
still only one-third of the national average. Growth for the middle 40% was weak,
with a pre-tax increase in income of 42% since 1980 and a post-tax rise of 49% (an
average of 1.4% a year). By contrast, the average income of the top 10% doubled over
this period, and for the top 1% it tripled, even on a post-tax basis. The rates of
growth further increase as one moves up the income ladder, culminating in an increase
of 636% for the top 0.001% between 1980 and 2014, ten times the national income
growth rate for the full population.
The rise of the top 1% mirrors the fall of the bottom 50%
This stagnation of incomes of the bottom 50%, relative to the upsurge in incomes
experienced by the top 1% has been perhaps the most striking development in the
United States economy over the last four decades. As shown by Figure 2.4.1a , the
groups have seen their shares of total US income reverse between 1980 and 2014. The
incomes of the top 1% collectively made up 11% of national income in 1980, but now
constitute above 20% of national income, while the 20% of US national income that was
attributable to the bottom 50% in 1980 has fallen to just 12% today. Effectively,
eight points of national income have been transferred from the bottom 50% to the top
1%. ... This has increased the average earnings differential between the top 1% and
the bottom 50% from twenty-seven times in 1980 to eighty-one times today.
Excluding health transfers, average post-tax income of the bottom 50% stagnated
The stagnation of incomes among the bottom 50% was not the case throughout the
postwar period, however. The pre-tax share of income owned by this chapter of the
population increased in the 1960s as the wage distribution became more equal, in part
as a consequence of the significant rise in the real federal minimum wage in the
1960s, and reached its historical peak in 1969. These improvements were supported by
President Johnson's "war on poverty," whose social policy provided the Food Stamp Act
of 1964 and the creation of the Medicaid healthcare program in 1965.
However, the share of both pre-tax and post-tax US income accruing to the bottom 50%
began to fall notably from the beginning of the 1980s, and the gap between pre-tax
and post-tax incomes also diverged significantly from this point onwards. Indeed, the
data indicate that virtually all of the meager growth in the real post-tax income of
the bottom 50% since the 1970s has come from Medicare and Medicaid. Excluding these
two health care transfers, the average post-tax income of the bottom 50% would have
stagnated since the late 1970s at just below $20 500. The bottom half of the US adult
population has therefore been effectively shut off from pre-tax economic growth for
over forty years, and the increase in their post-tax income of approximately $5,000
has been almost entirely absorbed by greater health-care spending, in part as a
result of increases in the cost of healthcare provision.
Taxes have become less progressive over the last decades
The progressivity of the US tax system has declined significantly over the last few
decades, as illustrated in Figure 2.4.6 . The country's macroeconomic tax rate (that
is, the share of total taxes in national income including federal, state, and local
taxes) increased from 8% in 1913 to 30% in the late 1960s, and has remained at the
latter level since. Effective tax rates have become more compressed, however, across
the income distribution. In the 1950s, the top 1% of income earners paid 40%--45% of
their pre-tax income in taxes, while the bottom 50% earners paid 1520%. The gap in
2014 was much smaller. In 2014, top earners paid approximately 30%35% of their
income in taxes, while the bottom 50% of earners paid around 25%.
In contrast to the overall fall in tax rates for top earners since the 1940s, taxes
on the bottom 50% have risen from 15% to 25% between 1940 and 2014. This has been
largely due to the rise of payroll taxes paid by the bottom 50%, which have risen
from below 5% in the 1960s to more than 10% in 2014.
Transfers essentially target the middle class, leaving the bottom 50% with little
support in managing the collapse in their pre-tax incomes
While taxes have steadily become less progressive since the 1960s, one major
evolution in the US economy over the last fifty years has been the rise of
individualized transfers, both monetary and in-kind. Public-goods spending has
remained constant, at around 18% of national income, but transfers--other than Social
Security, disability, and unemployment insurance, which are already included in
calculations of pre-tax income--increased from around 2% of national income in 1960
to 11% in 2014. The two largest transfers were Medicaid and Medicare, representing 4%
and 3%, respectively, of national income in 2014. Other important transfers include
refundable tax credits (0.8% of national income), veterans' benefits (0.6%), and food
Perhaps surprisingly, individualized transfers tend to target the middle class.
Despite Medicaid and other means-tested programs which go entirely to the bottom 50%,
the middle 40% received larger transfers in 2014 (totaling 16% of per-adult national
income) than the bottom 50% of Americans (10% of per-adult national income). ...
These transfers have been key to enabling middle-class incomes to grow, as without
them, average income for the middle 40% would not have grown at all between 1999 in
2014. By contrast, transfers have not been sufficient to enable the incomes of the
bottom 50% to grow significantly and counterbalance the collapse in their pre-tax
The reduction in the gender wage gap has been an important counterforce to rising US
The reduction in the gender gap has been an important force in mitigating the rise in
inequality that has largely taken place after 1980. ...The overall gender gap has
been almost halved over the last half-century, but it has far from disappeared. ...
Still, considerable gender inequalities persist, particularly at the top of the labor
income distribution, as illustrated by Figure 2.4.9 . In 2014, women accounted for
close to 27% of the individuals in the top 10% of the income distribution, up 22
percentage points from 1960. Their representation, however, grows smaller at each
higher step along the distribution of income. Women make up only 16% of the top 1% of
labor income earners (a 13 percentage point rise from the 1960s), and only 11% of the
top 0.1% (an increase of 9 percentage points). There has been only a modest increase
in the share of women in top labor income groups since 1999. The glass ceiling is
still far from being shattered.
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