The Impact of Economic Growth on Inequality Among South African Diverse Income Bracket Groups

Abstract

The dynamics of economic growth in South Africa are accompanied by the persistent inequality that affects various income bracket groups. This study evaluated the economic growth and inequality within South Africa’s diverse income brackets. Employing a quantitative Autoregressive Distributed Lag (ARDL) model, the study disaggregates income into specific groups to capture heterogeneous impacts: the bottom 10% of the low-income group (YLOW10), the bottom 20% (YLOW20), and the high-income group represented by the top 20% (YHIGH20). The findings concerning the poorest decile, referred to as YLOW10, reveal a concerning trend characterised by an anti-poor growth dynamic. This suggests that, despite overall economic expansion, the income share of the lowest-income individuals is negatively impacted, illustrating the persistence of inequality within the economic landscape. Conversely, individuals classified as working poor (YLOW20) are beginning to experience some benefits as the advantages of economic growth trickle down to them, although these improvements remain limited. Nevertheless, it is the higher-income groups, specifically YHIGH10 and YHIGH20, that are reaping the most substantial rewards from sustained economic growth. This concentration of benefits among the upper classes of society further exacerbates the wealth gap and undermines the potential for equitable development. To effectively address these disparities and foster a more inclusive economic environment, South Africa must prioritise a transition toward inclusive growth. This approach should focus on comprehensive structural reforms in the labour market that enhance job opportunities and wage growth for lower-income individuals. Furthermore, it is essential to strengthen institutions that support fair economic policies and practices, ensuring that the gains from growth are more evenly distributed across all segments of society. Implementing these changes will be crucial in creating a more equitable economic framework that benefits a broader range of the population.