Apartheid continues to cast shadow on equality of opportunity

09 June 2015 | Story by Newsroom
Leonardo DiCaprio plays Jay Gatsby in the <i>The Great Gatsby</i>. Jay's story has been used by economists to explain the combination of unequal distribution of income and less economic mobility. (Photo by Andrew Kelly/Reuters.)
Leonardo DiCaprio plays Jay Gatsby in the The Great Gatsby. Jay's story has been used by economists to explain the combination of unequal distribution of income and less economic mobility. (Photo by Andrew Kelly/Reuters.)

Countries with a more unequal distribution of income tend to have less economic mobility from one generation to the next. This relationship is often referred to as the "Great Gatsby Curve".

Generational mobility refers to the extent to which individuals have the opportunity to succeed economically regardless of the background of their parents.

There is growing global evidence on the nature of this relationship as well as on unequal access to opportunities in general. This has helped shine more light on the continued persistence of inequality.

Comparisons between countries point to a number of factors that result in inequality being passed from one generation to the next.

South Africa makes an interesting case

Given its high and dogged levels of inequality, South Africa represents a particularly interesting case. It also has a peculiar, and tragic, history of systematic racial discrimination against the majority of its population.

Recent research shows a high persistence of earnings from one generation to the next. This means that it is as difficult as ever for the children of those who were disadvantaged before the end of apartheid in 1994 to break out of circumstances they inherited from their parents.

In addition, unequal access to opportunities remains high.

The white minority's continued dominance

Unsurprisingly, race is shown to be particularly relevant for economic mobility and opportunity. White South Africans made up only 10% of the sample but they accounted for about 40% of the intergenerational income persistence. This is measured as the association between the income of one's parents and one's earnings as an adult.

This result is similar to the findings in the US, where African-Americans are persistently confined to the lower end of the income distribution. This generates a high proportion of the overall degree of intergenerational income disparity in the US.

Something similar may be happening in South Africa. The only difference is that the minority group is positioned at the top of the earnings distribution. In other words, a large part of the similarity of incomes across generations can be explained by the continued positioning of the white minority at the top.

More than earnings

The high persistence of earnings from generation to generation is an indication of unequal chances in the labour market. However, the achievement of equal opportunity does not imply simply getting rid of all sources of earnings resemblance between parents and children.

On its own, an intergenerational tie in the earnings of parents and children tells us little about the types of advantages passed from parent to child, or across generations.

Rather than pursuing the objective of zero correlation in the income of parents and their children, a better approach for policymakers might be to focus on those mechanisms that drive the transfer of advantage that seem unfair.

For example, most people would agree that family culture and ethics should be preserved. But some would regard wealth inheritance as less defensible.

There is one mechanism that is clearly unfair. It is the role of race in passing on economic status from one generation to the next.

Removing obstacles to mobility

Local and international studies point to obstacles that may explain the limited mobility and opportunity for the majority in South Africa.

First, virtually everyone agrees that family and public investments in early childhood development are crucially important. Early childhood conditions for most South Africans are far from optimal. This amounts to denying entire cohorts of low-income children a realistic chance to climb the social ladder.

Governments can adopt a number of early childhood interventions to remedy inherited social disadvantages.

The World Bank lists some relevant characteristics. These include: educating and supporting parents; delivering services to children; developing capacities of caregivers and teachers; and using mass communications to develop parents' and caregivers' knowledge.

Programs for children can be based at specialised centres or at home, can be formal or informal, and can include parent education.

Chances of economic success vary greatly across neighbourhoods. This is not simply a result of good neighbourhoods attracting individuals who would succeed anyway. This creates an obvious channel of economic resemblance across generations. It may be particularly relevant in South Africa where entire communities were moved under apartheid to designated areas.

Finally, nepotism and discrimination in hiring processes that determine access to good jobs may play a key role. This is one of the areas more consistently targeted by South African policymakers through, for example, affirmative action.

Being serious about effective policies calls for an appreciation of the various the ways that income inequality is passed on from one generation to the next. Increasing access to higher education institutions, for example, will not be as effective in promoting equality of opportunity if academic success is largely determined by human capital investments in early childhood.

Written by Patrizio Piraino, Associate Professor of Economics at University of Cape Town.

Disclosure statement: Patrizio Piraino has received funding from the National Research Foundation and the Economic Research Southern Africa programme.

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