Inequality in South Africa What Does A Composite Index of Well Being Reveal

New Zealand Economic Papers
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Inequality in South Africa: what does a composite

index of well-being reveal?
Stephanié Rossouw & Talita Greyling
To cite this article: Stephanié Rossouw & Talita Greyling (2021) Inequality in South Africa: what
does a composite index of well-being reveal?, New Zealand Economic Papers, 55:2, 221-243, DOI:
10.1080/00779954.2021.1904439
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NEW ZEALAND ECONOMIC PAPERS
2021, VOL. 55, NO. 2, 221–243
https://doi.org/10.1080/00779954.2021.1904439
Inequality in South Africa: what does a composite index of

well-being reveal?
Stephanié Rossouwa and Talita Greylingb
a Faculty for Culture and Society, School for Social Science & Public Policy, Auckland University of Technology,
Auckland, New Zealand; b School of Economics, University of Johannesburg, Auckland Park, South Africa
ABSTRACT ARTICLE HISTORY

In this paper, we construct a multidimensional composite well-being mea- Received 26 March 2020
sure for South Africa at a micro-level. This allows us to compare the inequal- Accepted 14 March 2021
ities in well-being in 2008 and 2017. Additionally, we determine the factors, KEYWORDS
which are significantly related to the inequality in well-being at these two Composite index; well-being;
points in time, using recentered influence function (RIF) regressions. Lastly, inequality; decomposition;
we use the Blinder–Oaxaca decomposition technique to determine if the South Africa
change in well-being inequality, is mainly due to an endowment – or a coef-
ficient effect. The RIF results show factors increasing well-being inequality
are demographic but also extends to knowledge and skills in the tech-
nology sector, access to financial markets, transport and living outside of
urban centres. Blinder–Oaxaca decomposition results indicate the differ-
ence in well-being inequality is mainly due to the coefficient effect. Policies
should not only endeavour to attain a more equal spread of endowments
but should also consider the elasticities of these endowments.
1. Introduction
South Africa is a highly unequal society (International Bank for Reconstruction and Develop-
ment/The World Bank (IBRD/WB) 2018), with a very skew well-being distribution, which has
harmful consequences. Well-being inequality increases social tension concerning (i) social-capital
problems, such as crime, violence, imprisonment, and a lack of trust; (ii) health-related problems,
such as substance abuse, life expectancy, obesity and mental illness; and (iii) human-capital prob-
lems, such as a lack of child well-being, high school dropouts and teenage pregnancies (Helliwell,
Layard, & Sachs, 2015; Wilkinson & Pickett, 2009).
Deaton (2013) defines well-being, as all the things that are good for a person that makes for a good
life. Thus, well-being is a multidimensional concept that includes health, education, everyday activi-
ties, participation in the political processes, social relationships, safety and the environment (Stiglitz,
Sen, & Fitoussi, 2009). As such, no single indicator (such as real income per person) can adequately
capture the full extent of well-being achievement (see Sen, 1993). That is, income is a measure of the
‘means’ and not the ‘ends’, indicating that income does not measure the well-being outcomes of pol-
icy. Additionally, measuring inequality in well-being using a single economic indicator, which is the
norm, might provide a distorted picture of the true level of well-being inequality. Furthermore, the
principle that the link between objective conditions and subjective well-being is sometimes contra-
dictory is well-established in the social indicators’ literature (see Easterlin, 1974; Land, 2000; OECD,
2013b; Stiglitz et al., 2009).
CONTACT Stephanié Rossouw stephanie.rossouw@aut.ac.nz Faculty for Culture and Society, School for Social Science
& Public Policy, Auckland University of Technology, Private Bag 92006, Auckland, 1142, New Zealand
© 2021 New Zealand Association of Economists Incorporated
222 S. ROSSOUW AND T. GREYLING
Therefore, against this backdrop, the primary aim of this paper is to investigate distributional pat-
terns of a multidimensional composite well-being index rather than a single objective and subjective
measure of well-being. This study will focus on the micro-level rather than macro-level, and the com-
posite well-being index will comprise domains of an economic and non-economic nature as well as
using objective and subjective indicators. The purpose of conducting this study lies in adding to the
ongoing debate regarding how to measure inequality because if you measure it incorrectly, you will
not be able to track whether progress has been made over time. Additionally, we utilise the composite
well-being index to investigate what determines the spread in well-being in two points of time, 2008
and 2017. Lastly, we investigate whether the change in the spread of well-being from 2008 to 2017 is
due to an endowment or coefficient effect.
It is vitally important that the correct measure to capture multidimensional well-being is used. Fail-
ure to do so could lead governments to formulate inaccurate and inadequate policies creating a loss of
confidence in government itself as well as not achieving the Sustainable Development Goals (SDGs)
(OECD, 2013a; Stiglitz, 2017; Stiglitz et al., 2009). Lastly, a composite multidimensional well-being
index can give us new insights into the social quality of South African lives. Beck, Van der Maesen, and
Walker (1997) define social quality as ‘The extent to which citizens can participate in the social and
economic life of their communities, under conditions which enhance their well-being and individ-
ual potential.’ Therefore we can gain valuable information on the extent of social-economic security
(such as protection against unemployment, poverty, ill-health and other material deprivations), social
exclusion (such as equal access to supportive infrastructures, labour conditions and collective goods),
social cohesion/anomie (the availability of social networks, equal access to services) and empower-
ment/disempowerment (enabling people to develop their full potential in social-economic, political
and cultural processes) in South Africa (Huxley et al., 2012; Marsh, Huppert, Donald, Horwood, &
Sahdra, 2020).
Previously studies that focused on distributional patterns of well-being approached them from an
objective point of view. Inequality in material well-being, as measured by either income, expenditure
or consumption, at a macro-level, has received most attention thus far (Lundberg & Waldenstrom,
2018; Main, Montserrat, Andresen, Bradshaw, & Lee, 2017; Mikucka, Sarracino, & Dubrow, 2017). In
saying this, there is a growing interest in looking beyond material inequality, and numerous studies
focus on measuring distributional patterns of well-being for single objective social indicators or from
a subjective point of view. These studies primarily focus on the macro-level but utilise objective, social
– or subjective indicators, such as life expectancy, infant mortality rates, happiness or life satisfaction
(see Barrington-Leigh & Escande, 2018; Clark & D’Ambrosio, 2014; Helliwell, Huang, & Wang, 2016).
Lastly, a few studies incorporated composite indices to analyse well-being inequality (Jordá, Trueba,
& Sarabia, 2015; Medcalfe, 2018; Poppitz, 2017), but focus on a limited number of dimensions of
well-being, such as income, health and education. Even though there are four established well-being
indices, which captures inequality dynamics,1 they are all limited by their focus on economic inequality
(Peterson, 2013). The Inequality-Adjusted Human Development Index (IAHDI) is multidimensional.
It accounts for inequality in income, education and health, but it does not include other dimensions
or subjective measures of well-being and is measured at a macro-level.
The current study contributes to the literature as it investigates well-being inequality using a multi-
dimensional composite well-being index, which includes objective and subjective measures and economic
and non-economic indicators. Except for the aforementioned contributions, this study also adds to the
relatively sparse array of studies focusing on inequality in the Sub-Saharan African region, as most
studies focus on either Europe, the United States of America (USA) or the South/South East Asia
region.
The results of this study can assist the South African government to evaluate and amend current
policies (if needed) and to successfully formulate new policies that could achieve a more equal distri-
bution of well-being. Lack of effective policies will hinder this outcome, and without higher levels of
equality, the South African people will not experience higher levels of quality of life (Asongu, 2014;
Olinto & Uematsu, 2017). Additionally, these policies that are needed to ensure an equal society is
NEW ZEALAND ECONOMIC PAPERS 223
also essential from the point of view, that without achieving higher levels of equality, South Africa
will not meet the abovementioned SDGs by 2030.
The study uses the National Income Dynamics Survey (NIDS) panel dataset, which includes five
waves and spans a period from 2008 to 2017. To estimate the determinants of well-being inequal-
ity, we make use of the regression of the recentered influence functions (RIF). Lastly, we apply the
Blinder–Oaxaca decomposition technique to decompose the spread in well-being inequality between
2008 and 2017 to determine whether the endowments (composition effect) or coefficient effect
explains the difference in well-being inequality over time.
Our results indicate that South Africa has a more equal distribution in well-being than in real
income per person or life satisfaction. About the determinants that created a more equal spread of
well-being in society in 2017, we find the important factors are being in a stable relationship, income
relative to your neighbour, access to health care and being a grant recipient. These determinants,
therefore, have a negative relationship to the spread in well-being. On the other hand, age, being
from the White racial group, being computer literate, having a loan or possessing a vehicle and living
outside of urban centres, are positively related to the observed variance in well-being. We find that the
coefficient effect contributes most in explaining the improved spread in well-being from 2008 to 2017.
This means that policy should not focus on merely increasing the absolute levels of endowments for
the group of individuals lagging behind, but also on the way they value these endowments to achieve
a more equal spread in well-being. Factors (apart from demographic variables) that can improve the
spread in well-being, and which should be valued more are access to healthcare, homeownership,
being a grant recipient and computer literacy.
The rest of the paper is structured as follows. Section 2 contains the outline of the methodology
used, whereas Section 3, describes the data and the selected variables. The results and analysis follow
in Section 4, while the paper concludes in Section 5.
2. Approach
In the empirical analysis, we use various stages and methodologies, and, as such, we divide this section
into four parts.
(i) Construction of the composite well-being index.

(ii) Inequality measures used in obtaining the distributional patterns.
(iii) The methodology employed to investigate the demographic and socioeconomic factors
related to well-being inequality in the two-time periods.
(iv) The methodology applied to decompose the difference, in the observed inequality between
2008 and 2017, in an endowment – and a coefficient effect.
2.1. Methodology followed for constructing the composite well-being index

In constructing the composite well-being index for South Africa, we follow the methodology as put
forth in the ‘Handbook on Constructing Composite Indicators’ (OECD, 2008), Hagerty and Land
(2012), Land (2014) and Greco, Ishizaka, Tasiou, and Torrisi (2019). Firstly, guided by the literature
(Stiglitz et al., 2009 and the OECD Better Life Index) we identify the specific domains of well-being
as well as the indicators within each of the domains to be included in the composite well-being index.
Next, we normalise each of these indicators to make the variables comparable, as our measures are
in different units such as years, currencies or scales. To normalise the indicators, we make use of the
minimum-maximum method.2
To weight the index, we choose equal weighting with linear aggregation. As argued by Hagerty
and Land (2012), equal weighting has the benefit of simplicity (see also the HDI), which is essential
for effective policymaking. Furthermore, we agree with Saisana and Tarantola (2002), Freudenberg
(2003) and the OECD (2008) to instead see the weights not as a measure of importance, but rather
as a trade-off between pairs of indicators. Decancq and Lugo (2013) stress this point by showing how
weights in this setting express the marginal rates of substitution among pairs of indicators. Under-
standably, this trade-off implies constant compensability between indicators and dimensions; thus,
a unit could compensate for the loss in one dimension, with a gain in another (Mazziotta & Pareto,
2017, 2018; Munda & Nardo, 2009; OECD, 2008). Although compensability might not be desirable
when constructing composite indices to measure the performance of countries or regions, it is benefi-
cial at a micro-level, where we measure the level of well-being of an individual, rather than comparing
the well-being of each or ranking individuals.
To test the sensitivity of our composite well-being index to subjective choices we made regarding,
the (i) normalisation of the indicators, (ii) method of weighting – and (iii) aggregation of the com-
posite index, we construct alternative composite indices, using these different options. The different
methods of normalisation that we use are the minimum-maximum method and standardisation. The
weighting methods we apply are principal component analysis (PCA) and equal weighting. Further-
more, using equal weighting, we distinguish between linear – and geometric aggregation.3 To test the
robustness of our index to these subjective choices, we calculate the Pearson correlation coefficient
between our index and the alternative indices. If the correlation is strong, positive and significant, we
assume our index to be robust (see Jordá et al., 2015).
Furthermore, we test the linkage (correlation) of our composite index to other published indices
and well-being measures, as an additional method to validate our index (Hagerty & Land, 2012;
OECD, 2008). We are limited in our choices, as no other multidimensional composite well-being
index exists for South Africa. A likely alternative measure for well-being that we use as a robustness
check is the HDI. In saying this, one must remember that it is constructed at the macro-level and
includes only three domains, compared to our index, which is more comprehensive and constructed
at the micro-level. However, we do compare the trend in these indices over time.
Lastly, we also compare the trend of a single indicator of well-being to our index, included in
the dataset, but not included in the composite index itself. For this purpose, we make use of a hap-
piness measure. If the trend over time is significantly correlated, we assume that our composite
well-being index is a valid representation of well-being in South Africa (Groh, von Liechtenstein, &
Lieser, 2010).
2.2. Inequality measures

Average statistics of income, consumption, health and well-being can contribute to policymaking in
a meaningful way but can hide the true picture of the overall living standards in a country. The distri-
bution of these indicators needs more prominence when considering policy intervention. Inequalities
in human conditions are integral to any assessment of well-being across countries and the way that
it is developing over time. Well-being inequalities should be assessed across people, socioeconomic
groups and gender (Stiglitz et al., 2009).
According to the research of Kendall and Stuart (1977), there are many statistics for quantifying
the dispersion in distributions.4 However, not all these measures perform equally well in measuring
the dispersion of bounded indicators such as happiness or in the current paper, the composite well-
being index. Kalmijn and Veenhoven (2005), found the pure statistical measures of dispersion such
as the variance and its square root, the standard deviation, and the interquartile range to give the
most satisfactory results in measuring the inequality in bounded variables (see also Clark, Flèche, &
Senik, 2012; Farris, 2010; Ott, 2011). Therefore, given the nature of our composite well-being index,
we use these measures of dispersion to determine inequality in well-being and adjust these measures
according to the mean values for comparison. The Gini-coefficient is not the most appropriate mea-
sure for bounded variables. Still, following Ferrer-i-Carbonell and Frijters (2004), Becchetti, Massari,
and Naticchioni (2014) and Fattore (2017) we accept that when we treat a variable as either cardinal
or ordinal in a regression framework, it is likely that we will obtain similar results as is the case for
continuous or unbounded variables. Consequently, seeing as the Gini-coefficient is arguably the most
cited measure of inequality, especially for those studies investigating income inequality, we use it for
a robustness check.
2.3. Methodology employed to investigate the demographic and socioeconomic factors

related to well-being inequality in the two-time periods
To answer the question of which factors determine well-being inequality in South Africa we utilise
a relative newly developed regression method,5 called the recentered influence functions (RIF)
regression6 (Firpo, Fortin, & Lemieux, 2009; Kollamparambil, 2019).
We denote the outcome variable by Y and assume that F represents its distribution. v(F), thus a
statistic of Y, such as its variance (see Section 2.2 for a discussion of dispersion measures). The RIF
regression aims to measure how explanatory variables, influences v(F), and we write the regression
as follows:
RIF(Wellbeingvariance ) = α + Xi + εi
where the explained variable is the variance in well-being inequality and as a robustness check, the
Gini-coefficient. A vector of explanatory variables is represented by Xi moreover, the error term is εi .
2.4. Methodology applied to determine whether different characteristics or structural

changes explain the difference in the observed inequality from 2008 and 2017
Why did the spread in well-being inequality decrease from wave 1 (2008) to wave 5 (2017)? Following
several studies (see, for example, Becchetti et al., 2014; Fredricks & Yu, 2017; Yang, Liu, & Zhang,
2019) we use the Blinder–Oaxaca decomposition technique to decompose the spread in well-being
inequality between waves 1 and 5. The purpose of this lies in ascertaining, whether mainly a composite
or coefficient effect is responsible for the change in the spread of well-being inequality comparing
these two points in time.
The endowment effect is related to the change in the distribution of the covariates, for example,
access to healthcare and loans. In contrast, the coefficient component is related to the changes in the
returns of these covariates. Using the Blinder–Oaxaca decomposition allows us to derive both the
aggregate and the detailed decomposition of the mean.
The following sub-section will provide an abridged illustration of the decomposition technique as
applied in this study (taken from Becchetti et al., 2014, p. 13).
Let Y be the degree of well-being. Let also Yit be the well-being of an individual i observed in
wave 5, and Yi0 the corresponding value in wave 1. For each i, the observed degree of well-being is
Yi = Yi1 · Ti + Yi0 · (1 − T1 ), where Ti = 1 if we observe the individual in wave 5, and 0 otherwise.
Finally, let X be a vector of K individual covariates, which we observe in both waves.
We write the conditional mean of Y on X at time t = 0, 1 as E(ϒ|X, T = t) = Xβt , where βt is the
vector of regression coefficients. The Blinder–Oaxaca decomposition allows one to break down the
μ μ
overall differences in means, o = μ1 − μ0 , into two components, the coefficient effect, s , and the
μ
endowment effect, x .
However, in this study, we are not interested in the mean differences, but rather in the distribu-
tional differences in well-being between waves 1 and 5. Therefore, we make use of the extension of the
Blinder–Oaxaca method, as suggested by Di Nardo, Fortin, and Lemieux (1996) and Fortin, Lemieux,
and Firpo (2012) and adopted in the study of Becchetti et al. (2014). In this study, the Blinder–Oaxaca
is applied to distributional parameters, namely the variance and Gini index. This is done through
a reweighting procedure when making use of the RIF regression method. By reweighting the dis-
tribution of X’s in wave 1 to have the same distribution as in wave 5, it is possible to estimate the
ν from the regression of our RIF
counterfactual mean X̄01 , as well as the counterfactual coefficients γ̂01
(Y0 ; ν) on the reweighted sample.
ν it is possible
Thus, by adding and subtracting the counterfactual estimated RIF regression X̄01 γ̂01
to decompose the overall change as
νo = [X̄1 γ̂01

ν ν
− X̄01 γ̂01 ν
] + [X̄01 γ̂01 − X̄0 γ̂0ν ] (1)
We define Equation (1) as the ‘reweighted-regression’ decomposition. However, this decomposition

entails both a specification and a reweighing error.7 Then, we estimate the ‘pure’ composition effect
as
νX,p = (X̄01 − X̄0 )γ̂0ν (2)
And the ‘pure’ coefficient effect as
νS,p = X̄1 [γ̂1ν − γ̂01
ν
] (3)
3. Data and variables

3.1. Data
The data used in this paper comes from the first five waves of the National Income Dynamics Survey
(NIDS), spanning the period 2008–2017. As a first instance, data from all five waves are combined
and pooled to construct a composite well-being index and then we use data for waves 1 and 5 in the
cross-sectional analysis. NIDS is a face-to-face longitudinal survey, which is repeated with the same
individual household members every two years (NIDS, 2016). This dataset focuses on the livelihoods
of individuals and households over time. The reason for choosing the NIDS data is because it is a
rich panel dataset following the same people over time and providing information on the different
well-being domains of the respondents. The analysis is restricted to adults 18+ years and older who
were successfully interviewed in waves 1 and 5.
In all analyses, we make use of design weights, ensuring that the results are representative of the
population. To consider panel attrition, we also employ panel weights instead of design weights, in
the estimation of the RIF regression for wave 5 (see the Appendix, Table A1). We find no difference
between the levels and direction of the significance of the two estimated models. Therefore, we believe
our results are robust, even considering panel attrition.
3.2. Variables
We base the selection of the domains as well as the variables that comprise the composite well-being
index on two significant contributions to the field, i.e. the Stiglitz et al.’s (2009) secular report and the
OECD’s Better Life Index (OECD, 2018).
In 2008, President Nicholas Sarkozy, asked Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi
to create a Commission, subsequently called ‘The Commission on the Measurement of Economic
Performance and Social Progress’. The reason Sarkozy wanted this Commission was that he was
unsatisfied with the present state of statistical information about the economy and society. Sarkozy
charged Stiglitz, Sen and Fitoussi with (i) identifying the limits of GDP as an indicator of well-being
(economic or otherwise), (ii) investigating the problems with its measurement and, (iii) finding what
additional information is needed for the production of more relevant indicators of well-being. The
domains outlined as important by the Stiglitz Commission included: health, education, everyday
activities including work and housing, participation in the political process, social relationships, safety
from bodily harm and the environment in which people live.
The OECD has been involved with policymaking, to assist governments to better the quality of
life for their citizens, since 1961, but it wasn’t until after the Stiglitz Commission (in 2011), that the
organisation functionalised the domains into what is now known as the Better Life Index. The OCED
has identified that essential to well-being includes material living conditions (housing, income, jobs)
and quality of life (community, education, environment, governance, health, life satisfaction, safety
and work-life balance). Unfortunately, limited by our dataset, we could not include variables repre-
sentative of all the domains identified above. We could not include the environment, civic engagement
and work-life balance domains in our composite well-being index.
Regrettably, we cannot know the precise effect of not including these domains in our composite
well-being index. In saying that, we can make a few educated judgments regarding this. The right to
vote is often used to measure civic engagement. Since the end of Apartheid in 1994, all South Africans
over the age of 18 has the right to vote. According to Nhlapo, Anderson, and Wentzel (2017), who
used data from the South African Social Attitudes Surveys (SASAS), the average proportion of South
Africans that intended to vote in 2014 was 87 per cent. Therefore, we can assume that voting turnout
is relatively high and that this domain is relatively evenly spread. Work-life balance in South Africa
is quite a complex concept. Work and home (or family and leisure time) are the two most significant
domains in the life of an employed individual (see Greenhaus, Collins, & Shaw, 2003; Papalexandris
& Kramar, 1997). This notion of work-life balance is challenging to incorporate in the South African
context since the unemployment rate is exceptionally high; in this sample, more than 61 per cent is
unemployed. Therefore, only a small amount of people will likely be affected by this domain, and the
effect on the distribution could be minimal. Even though South Africa’s CO2 emissions increased by
21.2 per cent from 2000 to 2016, it remains relatively low (8.5 tons per person) compared to developed
countries (14.1 tons per person in the USA) (DEA, 2018; USEIA, 2017). Since the environment affects
all South Africans, we are of the opinion that this domain has a relatively equal distribution among
the citizens.
Against this backdrop, together with the aim to use both subjective and objective indicators, at a
micro-level, the composite well-being index includes eight domains, represented by specific indica-
tors (see Table 1 for descriptive statistics, these statistics are in the raw format before normalisation).
All variables, utilised in the composite well-being index, are recoded to have the same direction
of coding, i.e. that the minimum value indicates the most ‘negative’ and the maximum value the
most ‘positive’. Additionally, all variables were normalised using the minimum-maximum method,
ensuring a scale varying between 0 and 1.
The domains and indicators included in the composite index are as follows:
1. To represent the domain of education, we use the highest level of education attained. The
level of education varied from no schooling (coded as 1) to 16 years of education (coded as
17) (reflecting post-graduate qualifications).
2. To represent the domain of material well-being, we use real household expenditure per per-
son. The decision to use expenditure over income is two-fold. Firstly, expenditure excludes
consumption not based on market transactions, which is vital, since many developing coun-
tries engage in home production activities. Secondly, since formal employment and sources
of income change regularly, expenditure provides a more constant representation (Deaton &
Grosh, 2000).
3. As regards the quality of housing, the study uses equal weighting and creates a composite
index using four indicators. The number of rooms in the house per person (after normalisa-
tion, thus a range between 0 and 1), whether a person has access to the following; piped water
in the household, electricity for cooking purposes8 and a flush toilet (Bookwalter & Dalen-
burg, 2004; Møller & Saris, 2001). To address the problem of adding binary and a continuous
variable, to derive a composite index, we make use of the following equation:
Quality of housing = (rooms ∗ 0.25) + (water ∗ 0.25) + (electricity ∗ 0.25) + (toilet ∗ 0.25)
This implies a weighting of 0.25 for a successful outcome (water, electricity, toilet) and a
weighting of 0.25 for the indicator rooms per person.
Table 1. Descriptive statistics of the variables used to construct the composite well-being index in the raw format before normali-
sation (pooled data – waves 1–5).
Domain (variables used) Observations Mean/frequency Std. Dev Min Max

Education (Highest level of 71,270 10.05 (Mode = 12) 3.58 1 17
education)
Material well-being (Real 71,278 2136.52 4394.33 26.95 136,036.9
household expenditure per
person)
Housing (Composite index) 69,855 0.555 0.25 0 1
Jobs (Employment = 1) 71,138 0.403 0.49 0 1
Community (Trust) 70,683 1.5 (Mode = 1) 0.73 1 3
Not likely - 64.41 - - -
Likely - 21.83 - - -
Very likely - 13.76 - - -
Safety (Theft and burglary) 13,358 3.07 (Mode = 2) 1.49 1 5
Never - 16.16 - - -
Rare - 22.28 - - -
Not common - 16.70 - - -
Fairly common - 17.65 - - -
Very common - 27.20 - - -
Life satisfaction (Likert scale: 69,06212 5.243 (Mode = 5) 2.45 1 10
1 = very dissatisfied,
10 = very satisfied)
Health 71,219 3.821 (Mode = 5) 1.09 1 5
Poor - 3.29 - - -
Fair - 8.73 - - -
Good - 24.85 - - -
Very good - 28.80 - - -
Excellent - 34.33 - - -
Source: Authors’ calculations from NIDS (2018).
4. To include the economic and social benefits associated with having a job, the study utilises
employment status.
5. To gauge the strength of the social network in communities, the study uses a measure of trust.
Participants had to respond to the following scenario ‘Imagine you lost a wallet or purse that
contained R250 and your contact details, and it was found by someone who lives close by. Is
it very likely, somewhat likely or not likely at all to be returned with the money in it?’
6. As a measure of personal security, the study uses a variable that determines the frequency at
which a person is exposed to burglaries, theft or muggings in their neighbourhood, with a
range from ‘never happens’ to ‘very common’.
7. As a complement to the objective data in the index, we include a subjective measure for life
satisfaction to gain insight into how respondents evaluate their lives. The study makes use of
the question ‘Using a scale of 1 to 10 where 1 means “Very dissatisfied” and 10 means “Very
satisfied”, how do you feel about your life as a whole right now?’
8. To measure health, we use a self-assessed measure of health, namely ‘How would you describe
your health at present?’ with a response on a scale from ‘poor’ to ‘excellent’ (Westaway, 2006).
We conducted an extensive literature review which informed our decisions regarding variable selec-
tion for the recentered influence functions (RIF) regression analysis (Table 2). For example, some of
the studies which formed part of our literature review include (but is not limited to) Møller and
Saris (2001) (marital status and racial group), Bookwalter and Dalenburg (2004) (transportation
and health), Westaway (2006) and Westaway, Olorunju, and Rai (2007) (health and racial group),
Blanchflower and Oswald (2004) (age and age squared), Clark, Frijters, and Shields (2007) (relative
income), Higgs (2007) (geographical area, health and connectivity), Hinks and Gruen (2007) (age, rel-
ative income, marital status, racial group), Kingdon and Knight (2007) (home ownership, age, racial
Table 2. Descriptive statistics of the variables used in the recentered influence function regression analysis.
Wave 1 Wave 5 Wave 1 and 5
Variable Mean Std Dev Mean Std Dev Min Max
Age 35.582 16.059 37.664 17.432 12 110
Age Squared 1523.948 1357.94 1722.465 1569.142 144 12,100
Gender (male = 1) 0.402 0.490 0.423 0.494 0 1
∗African (affirmative = 1) 0.807 0.395 0.871 0.335 0 1
Coloured (affirmative = 1) 0.083 0.276 0.089 0.286 0 1
Asian (affirmative = 1) 0.017 0.128 0.011 0.105 0 1
White (affirmative = 1) 0.094 0.291 0.028 0.165 0 1
Marriage (married = 1) 0.305 0.460 0.206 0.404 0 1
Religion 2.346 0.669 2.352 0.657 1 3
Health access (affirmative = 1) 0.847 0.359 0.936 0.245 0 1
Income relative to neighbour 2.508 0.954 2.601 0.956 1 5
Income relative to mean ( > mean = 1) 0.504 0.500 0.493 0.499 0 1
Computer literacy (affirmative = 1) 0.302 0.459 0.437 0.496 0 1
Loan (affirmative = 1) 0.049 0.216 0.085 0.279 0 1
Vehicle (affirmative = 1) 0.234 0.427 0.196 0.397 0 1
Cellphone (affirmative = 1) 0.867 0.339 0.958 0.199 0 1
House own (affirmative = 1) 0.765 0.424 0.696 0.459 0 1
Grant (affirmative = 1) 0.536 0.499 0.607 0.488 0 1
Rural (affirmative = 1) 0.062 0.240 0.072 0.257 0 1
Tribal (affirmative = 1) 0.322 0.467 0.346 0.475 0 1
Urban(affirmative = 1) 0.617 0.662 0.582 0.496 0 1
Note: ∗ refers to the reference group. Income inconsistencies between waves 1 and 5 in time-invariant variable is an indication of
missing data.
group, transportation), Stevenson and Wolfers (2008) (gender, marital status and age), Ritter, Pre-
ston, and Hernandez (2014) (religion), Rahman, Mittelhammer, and Wandschneider (2011) (health),
Puntscher, Hauser, Walde, and Tappeiner (2015) (religion and health), Manuel, Salinas-Jiménez, and
Salinas-Jiménez (2017) (marital status and religion), Yang et al. (2019) (gender, marital status, home-
ownership) and Kollamparambil (2019) (access to credit, religion, geographical area). Note that most
of the studies we rely upon were focused on determining the influencing factors in either happiness or
life satisfaction inequality on a macro-level since no studies (to the knowledge of the authors) focused
on a composite well-being index at a micro-level.
In Table 2, we give the mean and standard deviation of the variables in waves 1 and 5 and also
indicate the minimum and maximum values of each. In brackets, as appropriate, we indicate the
coding. We provide the frequencies of those variables that have more than two categories.
In terms of demographic variables, as expected, we find that the sample aged from wave 1 to wave 5
with fewer people in the age category of younger than 25 in wave 5 and more in all other age categories.
The dominant racial group is African (87 per cent), followed by Coloureds (9 per cent), Whites (3
per cent) and Asians (1 per cent). Interestingly, we find that the number of people who were married
or in a stable relationship decreased from wave 1 to wave 5 and that the number of people who found
religion to be important increased (albeit it slightly). From the geotype variables, we noticed a margin
of urban/tribal-rural migration, with the urban sector decreasing from 62 to 58 per cent from wave
1 to wave 5 (see Section 4.4 for further discussions).
4. Results
The results section reports on (i) the composite well-being index derived using equal weighting; (ii)
the dispersion of said index as well as the comparative subjective and objective indicators; (iii) fac-
tors influencing well-being inequality in wave 1 (2008) and wave 5 (2017), respectively; and (iv) the
decomposition of the spread in well-being inequality between waves 1 and 5.
Table 3. Correlation between alternative composite well-being indices (sensitivity analysis).

Well-being indices CWI CWI (stand) CWI (PCA) CWI (geometric)
CWI 1.000∗∗∗ 1.000∗∗∗
CWI (stand) 1.000∗∗∗ 1.000∗∗∗
CWI (PCA) 0.8676∗∗∗ 0.8676∗∗∗ 1.0000∗∗∗
CWI (geometric) 0.8875∗∗∗ 0.8875∗∗∗∗ 0.7969∗∗∗ 1.000∗∗∗
∗Note: CWI = composite well-being index with min-max normalisation, equal weighting and linear aggregation, CWI (stand)
composite well-being index with standardised normalisation, equal weighting and geometric aggregation, CWI (PCA) compos-
ite well-being index weighted using PCA. CWI (geometric) is a composite well-being index with min-max normalisation, equal
weighting and geometric aggregation (excluding dimensions = 0, missingness = 6%).
4.1. Composite well-being index

To construct our composite well-being index, we follow the methodology as outlined in Section
2.1. The sensitivity analysis results in Table 3, show that the alternative indices constructed, with
different methods of normalisation (minimum-maximum – and standardisation method), alterna-
tive weighting (PCA and equal weighting) and different aggregation methods using equal weighting
(linear – and geometrical) are all highly correlated. Based on these results, we conclude that our com-
posite well-being index is robust to the subjective choices regarding normalisation, weighting and
aggregation.
As an additional robustness check, we correlate the trend of our composite well-being index
(CWI) over time, with the HDI and a traditional single indicator of well-being, namely happiness
(see Section 2.1). We find that the trends in these measures are significantly correlated. Interestingly,
the correlation between CWI and HDI is negative (r = −0.646). Additionally, we find that the CWI
and happiness are positively correlated (r = 0.727).
The negative correlation between CWI and the HDI could be explained by the HDI only including
a limited number of objectively measured dimensions of well-being, which are real income per person
(decreasing over time), education (increasing over time) and longevity (increasing over time). Thus,
an aggregated positive outcome over time. This result contradicts the trends in CWI, although CWI
reflects the same trends as the HDI in these specific dimensions. However, CWI also considers the
other dimensions, including subjective measures, important to well-being. The other dimensions of
well-being, for example, employment, trust, safety and life satisfaction, all show negative trends over
time, thus culminating in a decline in 2017 (see Figure 1). This result once again emphasises the need
to ensure measures capture the correct dimensions of well-being since failure to do so could provide
policymakers with wrong conclusions and lead to governments making wrong decisions based on
misleading measures.
Based on these findings, we assume our composite well-being measure is a valid representation of
well-being in South Africa (Groh et al., 2010); thus, it measures what it is purported to measure.
4.2. A comparison of inequality across the composite index, objective and subjective single
well-being indicators
This section addresses the second research aim. We compare the results on inequality within a country
using our newly constructed composite well-being index, as well as the traditionally used single indi-
cators of real household income per person (objective) and life satisfaction (subjective well-being). To
ensure our results are representative of the South African population, we incorporate design weights.
Table 4 presents the results of an array of inequality measures for the composite well-being index,
real household income per person and life satisfaction for the whole sample. In saying this, for inter-
pretation purposes, the rest of the study rely only on those statistics proved to be satisfactory in
giving an appropriate reflection of inequality in bounded measures, as was argued by Kalmijn and
Veenhoven (2005). These statistics include the variance, the standard deviation and the interquartile
range, as well as statistics adjusted for differences in the mean values of the measures. From Table 4,
Figure 1. A comparison of the trend over time (2008–2017) in the HDI, CWI and real household income per person. Source: Author’s
calculation using NIDS data and the HDI.
Note: Trends in time are calculated as a percentage change relative to 2008.
Table 4. Comparison of inequality across the composite well-being index, real household income
per person and life satisfaction using an array of measures.
Inequality measure Well-being index Income Life satisfaction
Percentile 90/10 2.356 5.971 4.500
GE(1) 0.05 0.984 0.264
Gini 0.178 0.659 0.116
Atkinson(1) 0.054 0.564 0.134
Variance 152.488 78,500,000 5.9333
Relative variance 387.359 3,031,334 113.160
Std. dev. 12.348 8859.166 2.448
Relative std. dev. 31.368 342.103 46.691
Interquartile range 17.467 1791.571 4.000
Mean 39.366 2589.619 5.243
Source: Authors’ calculations from NIDS (2018). Note all calculations, including design weights.
it is evident that the spread in the well-being index is less than that of the single indicators, with a
relative standard deviation of 31.368 compared to 342.103 and 46.691, respectively.
Based on these results, when considering the multidimensionality of well-being, we derive at a
different conclusion on inequality, then using single indicators. This adds credibility to the argument
that using single indicators can provide misguided information, which can ultimately lead govern-
ments to formulate inaccurate and inadequate policies, creating a loss of confidence in government
itself (Stiglitz, 2017; Stiglitz et al., 2009). In the rest of the paper, we only consider the composite index
as a measure of well-being.
In Figure 2, we compare the relative standard deviation for the three measures for waves 1 and 5.
When comparing the spread in wave 1 to that in wave 5, the spread in the objective measure (income)
has become greater. Whereas for both the composite well-being index and life satisfaction, it has
decreased, albeit slightly for life satisfaction. Thus, if we considered real household income per per-
son, the conventional measure to determine well-being inequality, instead of the composite index
(or a subjective measure such as life satisfaction), we would have come to different conclusions and
potentially misinformed policymakers.
Figure 2. A comparison of the relative standard deviation of well-being, real household income per person (divided by 10) and life
satisfaction in waves 1 and 5. Source: NIDS (2018).
4.3. Factors related to well-being inequality in South Africa

We use RIF (as explained in Section 2.3) to investigate the factors related to well-being inequality,
in the two periods. Furthermore, we investigate whether there was any change in the relationships
between the factors and the spread in well-being, comparing the two points in time.
As can be seen from Table 5,9 the following demographic variables contributed to a more unequal
spread of well-being in society in 2017; age and being from the White racial group rather than African.
In terms of age, we find that the youth’s well-being is more equally spread, but as people grow
older, inequality increases. Therefore, it seems that policy introduced by, first the Accelerated and
Shared Growth Initiative for South Africa (AsgiSA) in 2006, then the New Economic Growth Path
(NEGP) in 2010 and most recently the National Development Plan (NDP) in 2012, to achieve higher
levels of equality, possibly had some degree of success (National Planning Commission, 2012). This
could be explained by improved opportunities offered to younger generations, such as more equal
access to education. See the Human Opportunity Index (HOI) South Africa, which has improved
over time (IBRD/WB, 2018). In saying this, it could also be explained by youth having the same
lack of opportunities, for example, access to employment. In this instance, all youth struggle to find
employment, thus it means lower inequality for this cohort but not necessarily in a positive sense.
By the year 2017, the youth unemployment rate reached 53.62 per cent compared to 44.83 per cent
in 2008. According to the OECD/ILO (2018), South Africa has persistently high levels of structural
unemployment.
While it seems that the well-being equality among South African youths has increased, the same
cannot be said for those in the older age groups. In the older age groups, you find those individuals
who have high levels of education, are likely employed and healthy. These individuals have relatively
high levels of well-being. Unfortunately, on the other end of the spectrum, you find those individuals
with no basic education, unemployed and who suffers from life-threatening illnesses, such as, HIV
or tuberculosis. Therefore, the gap in well-being is larger among older age groups.
Additionally, it seems that being from the White racial group widens the gap in well-being inequal-
ity. In saying that, the coefficient associated with the White racial group has decreased from 67.35 to
34.93 from wave 1–5. This indicates that the racial well-being gap between White and other racial
groups is decreasing. Therefore, we can infer that policies implemented to improve the livelihoods of
those people previously disadvantaged (mainly Africans) have had a degree of success. For example,
Black Economic Empowerment (BEE), a transformative government policy was introduced in 2003
Table 5. RIF regression results of well-being inequality in South Arica: 2008–2017.

Wave 1 Wave 5
Variable Coefficient SE Coefficient SE
Age 6.505∗∗∗ (0.692) 2.603∗∗∗ (0.424)
Age2 −0.053∗∗∗ (0.008) −0.008∗ (0.005)
Gender 1.463 (4.458) −4.992∗ (3.007)
Coloured (reference group is African) −28.769∗∗∗ (8.062) −7.148 (5.201)
Asian −17.668 (16.075) 15.284 (13.970)
White 67.352∗∗∗ (8.970) 34.934∗∗∗ (9.445)
Married −13.106∗∗ (5.603) −12.843∗∗∗ (4.056)
Religion −2.899 (3.294) 1.687 (2.234)
Health access 24.047∗∗∗ (6.164) −20.983∗∗∗ (5.935)
Income relative to neighbour −8.248∗∗∗ (2.430) −3.811∗∗ (1.577)
Income relative to mean 3.194 (5.021) 4.637 (3.202)
Computer literacy 42.987∗∗∗ (5.560) 20.743∗∗∗ (3.372)
Loan 18.924∗ (9.932) 33.648∗∗∗ (5.329)
Vehicle 26.542∗∗∗ (6.557) 17.576∗∗∗ (4.182)
Cellphone −19.389∗∗∗ (6.939) −3.853 (7.196)
House own 5.458 (5.498) −17.649∗∗∗ (3.326)
Grant 9.368∗ (4.889) −20.848∗∗∗ (3.229)
Tribal (reference group is urban) 1.880 (8.876) 25.259∗∗∗ (5.696)
Rural 39.159∗∗∗ (5.465) 20.585∗∗∗ (3.347)
Cons −4.088 (19.161) 83.063∗∗∗ (14.037)
N 11 319 13 804
adj. R2 0.062 0.047
F-stat 48.6 44.75
F.prob 0.0000 0.0000
Note: Standard errors in parentheses.
∗ p < 0.10, ∗∗ p < 0.05, ∗∗∗ p < 0.01.
(Makhunga, 2008). At the fore of this policy was achieving several key outcomes, which includes, (i)
transferral of wealth and factors of production (for example through land repatriation) to previously
disadvantaged Africans, (ii) ensure the development of skills and employment equity and, (iii) facili-
tate the development of an African middle class (Makhunga, 2008), which seems to have reduced the
inequality between race groups.
Apart from demographic variables, being computer literate and having a loan or possessing a vehi-
cle, are positively related to the observed variance in well-being. Any increase in these covariates
contributes to higher levels of inequality. Computer skills are still limited in South Africa, approxi-
mately only 43 per cent of the population over the age of 20 are computer literate (Table 2). Therefore,
in a world where computer literacy has become essential, the well-being gap between those with and
without this essential technological skill base is widening.
Access to formal credit is only accessible to the middle class and the wealthy, and a mere 8.5 per cent
of the population in wave 5 (2017) had access to credit. Considering these facts, it is understandable
that the exclusiveness of access to financial markets contributes to higher levels of inequality.
Transport is a challenge in itself, and often it is one of the highest expense items of a household
(Statistics South Africa, 2015). A limited number of commuters use private transport. In contrast,
the majority of South Africans make use of public transport, although the public transport system in
South Africa is not well developed and not very reliable. The main form of transport is privately owned
minibuses (taxis), which is relatively costly for passengers and not very safe (McLeod, 2018). There-
fore, access to privately owned vehicles, rather than using public transport, increases the inequality in
well-being, as only the more privileged have access to private transport. In contrast, the less privileged
(the majority of South Africans) need to rely on relatively expensive unsafe public transport.
Lastly, in terms of geographical location, rural areas relate positively to the variance in well-being;
thus, staying in these regions rather than in urban areas contribute to higher levels of inequality.
Buch, Hamann, Niebuhr, and Rossen (2014) argue that residents attracted to urban areas usually move
because of the benefits experienced in the domains of amenities (recreational facilities), climate and
accessibility to public goods. Ultimately, increased access to these leads to a more equal spread in well-
being for urban dwellers. Thus, the development of local government entities in rural areas should be
a priority, to provide not only more equal well-being in these areas, but also to achieve a better spread
of well-being between different geographical areas. Often, we find that there is a wide gap in well-
being between rural/ tribal areas and urban areas (Burger, Morrison, Hendriks, & Hoogerbrugge,
2020).
On the other hand, determinants that contribute to a more equal spread of well-being in society in
2017 include, being in a stable relationship, income relative to your neighbour, access to health care
and being a grant recipient. These determinants, therefore, have a negative relationship to the spread
in well-being.
Being married rather than single contributes to higher levels of equality. Possibly, this signals the
economic hardship of single people as they cannot rely on a spouse’s income to supplement their own
and benefit from economies of scale.
Over the years, relative income has become a more important indicator of well-being than absolute
income (see Cheung & Lucas, 2016; Clark et al., 2007). Therefore, people’s well-being is not influenced
as such, by absolute levels of income, but rather by perceived relative levels of income. It seems as if
the gap in perceived income has increased from wave 1 to wave 5. Even though it contributes to
decreasing the spread in well-being inequality, the effect in wave 5 is smaller than the effect in wave
1. In wave 1, 40 per cent of the people perceived their income to below their neighbour’s income
compared to 47 per cent in wave 5.
It is interesting to see that being a grant recipient in wave 1 contributed to an increase in inequality,
but in wave 5, the opposite is true. Thus, being a grant recipient in wave 5 contributes to a more equal
society. It is essential to mention that in our sample 54 per cent indicated to receive some type of grant
in wave 1 and in wave 5 this number increased to 61 per cent; thus if the majority of people receives
grants, it increases well-being equality. In 2017, more than 17 million people (SASSA, 2018) received
some type of grant to supplement income, seen against the very low employment rate of only 40 per
cent of the sample in wave 5, it seems that grants, although decreasing inequalities in well-being, might
not be a solution to the problem. A question of the sustainability of such a high reliance on grants
comes to the fore. Increasing the number of people depending on government grants for survival is
not sustainable in the long run.
Access to healthcare follow the same trend as being a grant recipient, thus in wave 1, it increased
the spread in well-being, though, in wave 5, it has the opposite effect. Better access to healthcare is
one of the primary focus areas of the NDP (2012) policy, and it seems that this policy was successful
in creating more access to healthcare in 2017 than in 2008. According to the responses, 85 per cent
of adults had access in 2008, which increased by almost ten per cent in 2017 to 93 per cent, thus a
marked improvement.
Determinants that were not significant in wave 1 and became significant in wave 5 offer new
challenges and opportunities to policymakers. These include owning a home and living on tribal
land.
Homeownership has a negative relationship to the spread in well-being in 2017. This implies that
the RDP (Reconstruction and Development Plan) (1994), AsgiSA (2006) and the NDP (2012) policy
has been successful in decreasing well-being inequality regarding the ownership of a house. First,
through dedicated funding commitments for housing (AsgiSA) and then through the delivery of
approximately 4.3 million government-subsidised houses (referred to as RDP housing) and subsidies
(NDP). RDP houses, which are built by the government, are given to low-income families. Therefore,
they are owned, not rented, by beneficiaries.
Living on tribal land in wave 5 contributes positively to the variance in well-being; thus, staying
in these regions contributes to higher levels of inequality compared to staying in urban areas. This
reiterates the finding regarding rural areas discussed above. Additionally, this finding strengthens the
call for the development of local government entities in areas outside of urban centres.
To summarise, based on the results of the RIF regressions, the following is of concern, as these
factors contribute to higher levels of well-being inequality in wave 5:
(i) age (inequality increases with age),

(ii) being a White South African, although the inequality among race groups has improved
significantly over time, it seems that being White still widens the gap,
(iii) being computer literate, having a loan or possessing a vehicle, and
(iv) living outside of urban centres.
These all lead to higher levels of well-being inequality; thus, there is a divide between the haves and
have-nots, related to these factors. Policy should focus on these factors to improve a better spread
of well-being. Furthermore, we see that living outside of urban centres contributes to higher lev-
els of inequality, which signals the urgent need for the development of local government entities in
rural/tribal areas. Such development could provide higher levels of well-being to those living in these
areas, and limit migration to urban centres.
4.4. Decomposition of well-being inequality within South Africa

As was discussed in Section 2.4, the purpose of utilising the Blinder–Oaxaca decomposition technique
is to decompose the well-being inequality difference between wave 1 (2008) and wave 5 (2017). By
doing this, we can determine whether the progress related to well-being equality from 2008 to 2017
is mainly due to an endowment – or a coefficient effect.10
Table 6 shows the endowment and the coefficient effects that explain the well-being gap between
the two periods. We see that the variance declined from wave 1 to wave 5 with 31.08. However,
of concern is the fact that the endowment effect (5.34) increased the well-being inequality gap.
Thus, the endowments are less equally spread among the population. Fortunately, the coefficient
effect (−36.41) countered this detrimental effect and narrowed the gap. This implies higher elasticity
effects; thus, a one-unit change in covariates led to a more than one unit decrease in the spread of
well-being.
As the coefficient effect significantly outweighed the endowments effect, we focus our discussion
on the covariates that contributed to the coefficient effect. In saying this, it does not mean that policy
should only focus on the coefficient effect, equalising the spread of endowments remains a priority,
such as improving the spread in healthcare services, computer literacy, and improving the well-being
in tribal areas. Thus, the focus should be to improve access to services for those who are currently
denied and thus lagging behind. Otherwise, inequalities in well-being will increase.11
The coefficient effect arises from differentials in how the covariates are associated with well-being
and are independent of the spread in the levels of the covariates. Thus, even if the spread in the levels is
the same in the two periods, these differences will persist. Table 6 shows that, apart from demographic
variables, the covariate relationships that contributed significantly to decreasing the coefficient effect
are access to healthcare, homeownership, being a grant recipient and computer literacy.
For example, the coefficient effect of access to healthcare contributes to a decrease in the well-
being gap of 42.21. Thus, apart from the dispersion in access to healthcare having decreased over time
(endowment effect), the access to healthcare coefficient effect, has also contributed to a more equal
spread in well-being. Therefore, access to healthcare is more efficiently translated into higher levels
of well-being. This means that the sensitivity (elasticity) of the spread in well-being has improved
considering access to health care.
Being a grant recipient (18.34), computer literate (9.8) and owning a home (16.04) also have the
same effect as access to healthcare. The return to well-being on these covariates has decreased the well-
being inequality gap over time. Implying that not considering the spread in the absolute levels of these
Table 6. Blinder–Oaxaca decomposition of well-being inequality.

Variance in
well-being
index SE
Differential
Prediction1 (W 5) 136.018∗∗∗ (2.087) - -
Prediction2 (W 1) 167.095∗∗∗ (3.370) - -
Difference −31.077∗∗∗ (3.964) - -
Decomposition
Endowment 5.337∗ (3.088) - -
Coefficient −36.414∗∗∗ (4.747) - -
Decomposition of the endowment effect Decomposition of the coefficient effect
Age 13.379∗∗∗ (2.715) −146.679∗∗∗ (49.452)
Age2 −10.459∗∗∗ (2.941) 78.020∗∗∗ (27.235)
Gender 0.029 (0.137) −2.735 (3.437)
Coloured (reference group is African) −0.083 (0.110) 1.953∗ (1.103)
Asian 0.157 (0.197) 0.364 (0.367)
White −5.152∗∗∗ (1.629) −0.883 (0.767)
Married 1.319 (0.939) 0.055 (2.326)
Religious 0.026 (0.053) 10.783 (14.454)
Health access −1.950∗∗∗ (0.620) −42.205∗∗∗ (10.258)
Income relative to neighbour −0.650∗∗ (0.298) 11.543 (10.650)
Income relative to mean −0.108 (0.213) 0.715 (3.820)
Computer literacy 5.197∗∗∗ (1.024) −9.796∗∗ (4.198)
Loan 0.656 (0.640) 1.283 (1.795)
Vehicle −1.377∗∗∗ (0.519) −1.775 (2.259)
Cellphone −1.453∗∗ (0.646) 14.885 (11.918)
House own −0.450 (0.798) −16.040∗∗ (7.536)
Grant 0.772 (0.646) −18.344∗∗∗ (5.596)
Rural (reference group urban) 0.007 (0.034) 1.690∗ (0.934)
Tribal 1.577∗∗∗ (0.358) −6.400∗∗ (2.755)
Cons - - 87.151∗∗ (33.855)
Standard errors in parentheses ∗ p < 0.10, ∗∗ p < 0.05, ∗∗∗ p < 0.01.
covariates, the ability to value these covariates increases the levels of well-being and has improved the
spread in well-being over time.
In the instance of higher levels of welfare payments (grants), the market might be close to sat-
uration levels. One extra unit increase in these endowments, in the future, will contribute less to
improving well-being equality than previously (law of diminishing marginal returns), since many
people already have access to grants. Thus, careful consideration of any future policy to increase the
levels of this endowment to improve equality in well-being is needed.
In the case of computer literacy (9.8), and owning a home (16.04), the market is far from saturated
and higher levels in these endowments and a more equal spread, and increasing elasticities (how
these factors are valued) could lead to higher well-being equality gains. The well-being sensitivity for
changes in the endowments can be improved by better training, education and appreciation (Good
Governance Africa, 2019), thus implying that a unit increase in an endowment, would lead to a higher
decrease in well-being inequality.
Taking all of the above into consideration, two primary aims for government come to the fore.
Firstly, policy intervention to increase the accessibility to communication, technology and transport
(infrastructure) sectors is needed to improve the spread of well-being in South Africa. Secondly,
higher levels of skills, training, education and valuing these endowments can lead to higher levels
of well-being equality. Furthermore, although it seems that specific policy measures do benefit the
disadvantaged in South Africa, policymakers should be aware of the detrimental effects of relying
too heavily on social welfare measures to improve equality in well-being. High levels of social welfare
payments are not sustainable in the long run, and will not improve well-being inequality, especially
in light of diminishing returns and inefficiencies.
5. Conclusions
South Africa became a democracy in 1994, after an era in which the White minority group ruled.
This system led to widespread inequalities between racial groups, gender and geographical regions.
With the onset of this new democracy, policy measures were introduced to address these inequalities.
However, after more than twenty-five years of democracy, the country is still faced by deep-seated
socioeconomic challenges, including persistent high unemployment, poverty and inequality and a
dependency rate on social welfare of more than 33 per cent of the population (17.7 million people).
The inequalities are not only between racial groups but also across space, gender, income and well-
being.
In this paper, we constructed a multidimensional composite measure of well-being, which
included domains comprising of an economic and non-economic nature, as well as objective and
subjective indicators. The purpose of doing this lies in adding to the ongoing debate regarding how to
measure inequality because if you measure it incorrectly, you will not be able to track whether progress
has been made over time. By using our composite well-being index to investigate what determined the
spread and change in well-being in two points of time, 2008 and 2017, we were able to see whether the
policies introduced to address inequality in South Africa has made progress.
After utilising an array of inequality measures, we found that the dispersion between our com-
posite well-being index, real household income per person and life satisfaction varied considerably.
We noticed that for all periods, real household income per person had a much wider dispersion than
either subjective well-being or the composite well-being index. We concluded that when measuring
well-being inequality within a country, one could not rely on results generated by single measures of
material or subjective well-being.
Utilising RIFs allowed us to investigate the determinants of the spread in well-being, in the two
periods (2008 and 2017). Furthermore, we investigated whether there was any change in the deter-
minants during this period. We found that demography played a significant role since well-being is
more equally distributed among the younger generation and married people. Furthermore, an indi-
vidual’s relative standing, ability to access health care and government grants also had a decreasing
effect on well-being inequality. On the other hand, being of the older generation, of White South
African descent, being computer literate, having access to financial markets or private transport and
living in rural areas, increases the spread in well-being.
Additionally, even though being of White South African descent is positively related to the spread
in well-being, the RIF results indicated that policy regarding racial inequalities had a degree of suc-
cess over time. We found that the coefficient associated with the White racial group has decreased
from 67.35 to 34.93 from 2008 to 2017. This indicates that the racial well-being gap between White
and other racial groups is decreasing. On the other hand, those determinants that were not signifi-
cant in 2008 but became significant in 2017 signal new challenges to policymakers: such as living on
tribal/rural land.
The adjusted Blinder–Oaxaca decomposition technique was used to decompose the spread in well-
being inequality between 2008 and 2017. We found that the coefficient effect contributed the most
in explaining the well-being inequality gap between 2008 and 2017. Upon further analysis, we found
that the covariate relationships (apart from demography) that improved the spread in well-being, and
which should be valued more, were access to healthcare, homeownership, being a grant recipient and
computer literacy.
Taking all of the above into consideration, it is clear that government policy should be directed at
the highlighted factors, which forms part of well-being. Policies directed at the long-run improvement
and spread in people’s well-being should see the development of policies such as access to credit,
technology, improved transport services and further improving the divide between demographic and
racial groups as well as geographical regions.
Notes
1. Genuine Progress Index, Index of Economic Well-being, Index of Sustainable Economic Well-being and the
Sustainable Societal Index.
2. The Min-Max method normalise an index to have an identical range [0, 1] by subtracting the minimum value and
dividing by the range (Arellano & Bover, 1995; Tabachnick & Fidell, 2007; OECD, 2008).
3. As the minimum-maximum method is our preferred method of normalisation, it implies that some indicators do
have a value of zero, which can result in a dimension with a value of zero, which has implications if geometric
aggregation is used. However, in the complete data set there are very few dimensions of individuals that have a
value of zero. In the instance where a dimension is equal to zero, the whole observation is deleted. Nonetheless, the
rate of missingness is very low and the results are comparable to that of the linear aggregated index.
4. The range, average deviation from the mean, variance and its square root, the standard deviation, relative standard
deviation, interquartile range, mean pair distance, the Gini-coefficient, Lorenz curves, Theil’s measure of entropy
and the Atkinson’s class of inequality measures.
5. See Alaimo and Solivetti (2019) and Ferrari and Cribari-Neto (2004) for fractional – (the former study) and beta
models (the latter study) used for bounded variables [0,1].
6. For a detailed discussion of ‘recentered influence functions’ (RIF) see Firpo et al., (2009).
7. The error term is a combination of the reweighting error and the specification error.
8. The construction of the ‘quality of housing index’ follows the same method (equal weighting and linear aggregation)
as is used to construct the education component of the HDI (UNDP, 2010).
9. See Table A2 in the Appendix for the RIF results, using the Gini-coefficient.
10. We remind the reader that the reweighting is done similar to a normal Blinder-Oaxaca decomposition, for exam-
ple, if there are two groups: A and B. In this instance, we have waves 1 and 5, and the group differences in the
predictors are weighted by the coefficients of group B to determine the endowments effect. The endowment com-
ponent measures the expected change in group B’s mean outcome (variance) if group B has group A’s predictor
levels. Similarly, for the coefficient component (the coefficients effect), the differences in coefficients are weighted
by group B’s predictor levels. That is, the coefficient component measures the expected change in group B’s mean
outcome (variance) if group B had group A’s coefficients.
11. We do not discuss the interaction effect in itself, as much of the discussion coincides with that of the coefficient-
and endowment effects.
12. Please note that certain of the variables are ordinal of nature, but we assume it to be continuous, in line with the
findings of Frey and Stutzer (2000).
Disclosure statement
No potential conflict of interest was reported by the author(s).
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Appendix
Table A1. A comparison of the RIF regression results of the well-being inequality in South Arica in 2017 using design weights and
panel weights.
Estimation using design weights (1) Estimation using panel weights
Variable Coefficient SE Coefficient SE
Age 2.603∗∗∗ (0.424) 2.423∗∗∗ (0.458)
Age2 −0.008∗ (0.005) −0.009∗ (0.005)
Gender −4.992∗ (3.007) −6.899∗∗ (3.058)
Coloured (reference group is African) −7.148 (5.201) −7.271 (5.401)
Asian 15.284 (13.970) 6.553 (10.722)
White 34.934∗∗∗ (9.445) 58.816∗∗∗ (6.856)
Married −12.843 (4.056) −0.355 (4.037)
Religion 1.687 (2.234) 1.026 (2.288)
Health access −20.983∗∗∗ (5.935) −17.899∗∗∗ (6.181)
Income relative to neighbour −3.811∗∗ (1.577) −5.802∗∗∗ (1.657)
Income relative to mean 4.637 (3.202) −1.904 (3.374)
Computer literacy 20.743∗∗∗ (3.372) 15.249∗∗∗ (3.469)
Loan 33.648∗∗∗ (5.329) 24.363∗∗∗ (5.205)
Vehicle 17.576∗∗∗ (4.182) 21.117∗∗∗ (4.191)
Cellphone −3.853 (7.196) −9.145 (7.633)
House own −17.649∗∗∗ (3.326) −8.198∗∗ (3.363)
Grant −20.848∗∗∗ (3.229) −18.701∗∗∗ (3.286)
Tribal (reference group is urban) −4.673 (6.015) 0.076 (6.153)
Rural −25.259∗∗∗ (5.696) −23.818∗∗∗ (5.735)
− cons 108.321∗∗∗ (14.848) 121.696∗∗∗ (15.537)
N 13,804 13,804
adj. R2 0.047 0.046
Table A2. RIF regression results of the well-being inequality in South Arica: 2008–2017 (Gini-coefficient).
Wave 1 Wave 5
Variable Coefficient SE Coefficient S.E.
Age 0.002∗∗∗ (0.000) −0.000 (0.000)
Age2 −0.000 (0.000) 0.000∗∗∗ (0.000)
Gender −0.012∗∗∗ (0.003) −0.008∗∗∗ (0.002)
Coloured (reference group is African) −0.020∗∗∗ (0.005) −0.007∗∗ (0.003)
Asian −0.005 (0.010) −0.001 (0.009)
White 0.018∗∗∗ (0.005) −0.000∗ (0.006)
Married −0.010∗∗∗ (0.003) −0.009∗∗∗ (0.003)
Religion −0.006∗∗∗ (0.002) −0.004∗∗∗ (0.001)
Health access 0.023∗∗∗ (0.004) −0.006∗∗∗ (0.004)
Income relative to neighbour −0.013∗∗∗ (0.001) −0.009∗∗∗ (0.001)
Income relative to mean −0.014∗∗∗ (0.003) −0.008 (0.002)
Computer literacy 0.010∗∗∗ (0.003) −0.000 (0.002)
Loan 0.001 (0.006) 0.008∗∗ (0.003)
Vehicle 0.003∗∗ (0.004) 0.005∗ (0.003)
Cellphone −0.019∗∗∗ (0.004) −0.012 (0.005)
House own 0.012∗∗∗ (0.003) −0.005∗∗ (0.002)
Grant 0.016∗∗∗ (0.003) −0.001∗ (0.002)
Tribal (reference group is urban) 0.040∗∗∗ (0.006) 0.015∗∗∗ (0.004)
Rural 0.004 (0.005) −0.009∗∗ (0.004)
− cons 0.153∗∗∗ (0.012) 0.210∗∗∗ (0.010)
N 11,319 13,804
adj. R2 0.093 0.075
F-stat 49.6 45.75
F.prob 0.0000 0.0000

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Inequality in South Africa: what does a composite

Stephanié Rossouw & Talita Greyling

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Inequality in South Africa: what does a composite index of

ABSTRACT ARTICLE HISTORY

(i) Construction of the composite well-being index.

2.1. Methodology followed for constructing the composite well-being index

2.2. Inequality measures

2.3. Methodology employed to investigate the demographic and socioeconomic factors

2.4. Methodology applied to determine whether different characteristics or structural

νo = [X̄1 γ̂01

We define Equation (1) as the ‘reweighted-regression’ decomposition. However, this decomposition

3. Data and variables

Domain (variables used) Observations Mean/frequency Std. Dev Min Max

Table 3. Correlation between alternative composite well-being indices (sensitivity analysis).

4.1. Composite well-being index

4.3. Factors related to well-being inequality in South Africa

Table 5. RIF regression results of well-being inequality in South Arica: 2008–2017.

(i) age (inequality increases with age),

4.4. Decomposition of well-being inequality within South Africa

Table 6. Blinder–Oaxaca decomposition of well-being inequality.

http://www.statssa.gov.za/wp-content/themes/umkhanyakude/documents/South− Africa− overty− and− Inequality−

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νo = [X̄1 γ̂01