Stable middle-class in SA may be smaller than thought

Until recently, SA’s emerging black middle class was hailed as the sign of a new, deracialised postapartheid economy. But research shows the stable middle class may be much smaller than previously thought.

Statistics SA has found that 55% of South Africans are poor, unable to meet their most basic needs. This means only about 45% of the population are not poor. Not being poor is an inadequate indication that the same will be true in the near future. Many people who are not poor are in precarious economic situations. Our research shows almost one in two South Africans who are not poor are at risk to falling into poverty.

Being in the stable middle class is not only about location in the literal middle of the income distribution: it means being free from poverty, not only today, but also tomorrow. It is about the freedom and stability to engage in mid-and long-term planning. It is about access to opportunities to move ahead in life, and about the financial cushion that enables risk-taking and protection against shocks.

By these criteria, what many celebrate as SA’s emerging middle class – which we term the "vulnerable" middle class – still has shallow roots. Focusing on economic vulnerability, we use data from the National Income Dynamics Study (Nids) to distinguish the "stable" middle class, from the "vulnerable" middle class. Nids is a longitudinal study funded by the Department of Planning Monitoring and Evaluation and implemented on its behalf by the Southern African Labour and Development Research Unit (Saldru) at the University of Cape Town.
 

When Nids began in 2008, it surveyed 28,000 South Africans and it has returned to survey them every two years. A quarter of those who were not poor in 2008 had become poor by 2014, indicating that any snapshot definition of a middle class does not show who is vulnerable to poverty.

Using Nids data, five main social classes are delineated: the elite, the stable middle class, the vulnerable middle class, the transitory poor and the chronic poor. Only one in four South Africans are part of either the secure middle class or the elite. Altogether 14% fall into the category of vulnerable middle class and about 13% could be classified as part of the transitory poor. The rest — about half of the population — are chronically poor, with scant chance of moving into the middle class.

The most stable of these classes are the elite (stably not poor) and the chronic poor (stably poor). The bulk of the poor are chronically poor.
 

The vulnerable middle class are those who have been poor and who are likely to become poor in future. This suggests that the proportion of the population that experiences poverty with some regularity may be greater than Stats SA’s 55% figure.

As with the transient poor, the vulnerablility of the middle class is determined by its insecure position in the labour market. Gaining or losing a job for those on the margins can mean the difference between being poor or not poor. Indeed, high levels of vulnerability can be directly attributed to precarious forms of employment.

The faltering growth of the stable middle class is a key driver of increasing inequality. Although there has been growth in real income since 1993, including of the poor, inequality continues to rise. This is partly because the income of those in the middle of the distribution has grown too slowly.

While the share of the middle class remained relatively stable between 2008 and 2014-15, it is encouraging that the share of black Africans in the middle class has been expanding and comprise half the middle class. However, black Africans are still underrepresented in the middle class compared to their share in the overall population. Race remains a strong predicter of chronic and transient poverty.

Poor households are on average twice the size — about seven people — of those in the middle class. They are younger, with about half below the age of 18.

Poverty is concentrated among the young — three out of four children below the age of 15 live in poverty. This is a particular worry for the future because inadequate nutrition portends suboptimal education outcomes: disadvantage is inherited and poverty becomes an intergenerational trap. More than half of the chronic poor are located in "traditional" rural areas — the former homelands.
 

Only one in five has access to electricity, a flush toilet and formal housing, compared with one in two among the transient poor and vulnerable middle class. Chronic poverty is lowest in the Western Cape and Gauteng and highest in KwaZulu-Natal, which has the second-smallest middle class, after Limpopo. KwaZulu-Natal has the fourth-largest elite, indicating high levels of inequality in the province. Access to a stable job is a key determinant of economic security. Education and employment (ideally in a white-collar occupation) are strong predicters of lower vulnerability to poverty.

The middle class generally derives its status from income generated in the labour market, and depends on this to sustain its lifestyle.
 

The stable middle class and elite receive more than 80% of their income from the labour market. While the vulnerable middle class receives two-thirds of its income from the labour market, this is often from irregular and insecure forms of work. The chronic poor receive only one-third of their income from employment, and more than half their income from social grants.

Those among the poor or vulnerable who have jobs tend to be employed informally, or temporarily, whereas 80% of those with jobs among the middle class or elite have permanent contracts. Moreover, they tend to be in high-skilled or professional occupations.

The chronic poor live overwhelmingly in female-headed households and, unsurprisingly, are almost exclusively African.

Gaining or losing a job is the most important determinant of economic mobility. Demographic events, such as a birth or death, can also lead to downward mobility. A shock such as the death of an employed person can push a household out of the middle class.

Migrating from a rural to an urban area in Gauteng or the Western Cape improves the prospects for finding employment and can be a pathway out of poverty. But it does not occur frequently enough to observe large aggregate effects.

Insurance policies and access to financial services can act as a cushion against income shocks. However, financial services are usually accessible only to the upper middle classes and elite. Those who are most exposed to the risk of death, job-loss and other negative shocks are also those least likely to be insured against these risks.

The evidence points to several strategies to promote the growth of the stable middle class and provide avenues out of poverty for disadvantaged South Africans. Better access to high-quality education, proximity to urban centres that provide economic opportunity, and the presence of a formally employed member in the household reduce inequality of opportunity and limit the effect of parental socioeconomic background in determining vulnerability to poverty.

The government should investigate improving access to insurance and financial services for the vulnerable middle class and poor, with the aim of closing off pathways into poverty. In the meantime, social grants remain indispensable for the survival of the poorest.

• Leibbrandt is an economics professor at UCT and director of Saldru; Zizzamia is a Saldru researcher and graduate student at Oxford University. This article draws on their Saldru paper, co-authored by Simone Schotte, a research fellow at the German Institute of Global and Area Studies. It was published first on BusinessDay Live on 2 October 2017. (Image Courtesy of RawPixel)