Income Inequality in South Africa (2008)

Undergraduate: Emily Nix

Faculty Advisor: David Blau
Department: Economics

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Past literature has broken down South Africa’s consistently high overall income inequality into two parts: within-race-group income inequality and between-race-group income inequality. The literature demonstrates that while South Africa’s between-race-group income inequality has fallen, overall income inequality remains stagnant because within-race-group income inequality increased. Building on recent results in Moll (2000), this paper presents evidence for the theory that decreasing discrimination caused the increase in within-race-group income inequality. As labor force discrimination decreases, the usual causes of income inequality, such as ability and education, are dominant. Thus, I estimate a regression of log earnings with education as the key explanatory variable. I compare the returns to education by race for the years 1980, 1991, and 1993. I find that while the results for whites are inconclusive, the returns to education for blacks increased and account for a substantial amount of the variation in income among working black males.