Growth and Inequality: The South African Case in International Context—The Central Role of the Labor Market

Abstract

<jats:title>Abstract</jats:title>
<jats:p>The relationship between economic growth and inequality has not been settled. Using South African time series data, the core finding of this article is that growth and inequality codetermine one another: growth lowers inequality, and falling inequality in turn serves to stimulate growth. There are additional statistically and substantively significant drivers of inequality in South Africa. Labor absorption (job creation) is the most important of these. The opening of the South African economy post 1990, the lowering of credit rationing in the economy in the 1990s, and the fiscus all prove to exert important influence on the net inequality outcome also. The findings imply that the strongest policy levers suitable for raising average welfare and lowering inequality are policies designed to stimulate growth, increase labor absorption, extend credit to entrepreneurs, ensure household credit is broad-based, and ameliorate the disruptive impacts of globalization on labor markets.</jats:p>