Inequality In South Africa

1. Inequality

In an article about inequality Gavin Keeton (2014) said, “Following the works of Simon Kuznets on economic growth and income inequality many economists argued that inequality was an inevitable part of economic development. Simon Kuznets argued that in developing countries economic growth initially leads to increasing levels of inequality, rich people save more than the poor, so inequality aids the process of capital accumulation in poor countries.” In South Africa well over half workers are currently earning below the estimated minimum living level around R4500 (Neil Coleman, 2014). In 2013 the median wage was R3033 down from R3115 in 2012, this means that 50% of the workers are earning well below the estimated minimum living

Other causes of income inequality are Import competition and the decline of unionism. Strong import competition has severely reduced the demand for workers in several high-wage, unionized industries, including autos and steel (Campbell R. McConnell). This is evident from graph 1, where there has been a steady escalation in importations since 1994 till present and can be contrasted to the steady reduction in South Africa’s manufacturing, as a percentage of GDP and shown in graph 2. This decrease in manufacturing has led to many workers being displaced from unionized jobs, and has increased the labour supply in lower-paying industries (Campbell R.McConnel). As technology advances, so does our ability to automate. Using Toyota as an example, they have been able to almost fully automate their assembly line, only requiring workers to do quality control and maintain machinery. This technological advancements has lead to an increase in demand for skilled workers. In South Africa we have seen a shift in the demand for skilled to unskilled employment change from 35:65 between 1970 and 1975, to 53:46 between 2000 and 2002 (Ligthelm, 2005). Therefore South Africa’s unemployment is a structural mismatch between the skills the modern South African economy demands and the skills it supplies. This has compounded with the

We should look at other countries who have successfully adopted the minimum wage. In the case of Brazil, there success was attributable to the fact that they had increased their domestic productive capacity. This allowed for jobs to be created at the lower end of the wage distribution. In the case of the United Kingdom, they implemented the national minimum wage in such a way as to only affect 6% of the labour force, and thus had not created a cost shock to businesses. As a result, a study by Mark B. Stewart (2004) found that “there were no significant adverse effects on employment for either the introduction or uprating’s for any of the demographic groups considered.” From here the paper recommends a national minimum wage as mechanism for inequality reduction, however it must accompanied by an increase in domestic productive capacity and a further study into the costs structure of firms and businesses affected by a national minimum