The growth of the middle class is positively associated with many goals of development.
Studies from several countries suggest that a sizable middle class may help to promote
political stability, foster human capital accumulation, encourage savings and
entrepreneurship, and ultimately achieve higher levels of economic growth.
In this thesis, two definitions of the middle class in South Africa are evaluated based
upon two broad approaches adopted in the international economics literature: a middle
class defined around the median of the per capita household income distribution, and a
middle class defined by an absolute threshold of middle-class affluence. The study
shows that there is very little overlap between these two definitions, a finding which
reflects high levels of poverty and inequality in South Africa. Nevertheless both
definitions warrant further exploration, as they offer different insights into the nature of
development in South Africa.
The affluent middle class draws attention to those with a standard of living associated
with relative economic prosperity (defined by total after-tax household income of
R1,400 – R10,000 per capita per month in 2008 prices). The racial composition of the
affluent middle class in South Africa switched from majority White to majority African
between 1993 and 2008. However, growth in the total size of the affluent middle class
was slow, driven by declines in the number of middle-class Whites. An econometric
assessment of the predictors of affluence highlights the continued importance of race
and labour market status in predicting household incomes. A decomposition analysis
suggests that the driving force behind changes (and continued differences) in African
and White levels of affluence are real differences in the levels of endowments, rather
than differences in the returns to endowments.
The second definition of the middle class, as the middle-income strata, identifies the
socio-economic status of the ‘average’ South African (defined by 50% - 150% of the
median per capita household income). Per capita income levels about the median are
very low, bordering on poverty. Between 1993 and 2008, income growth for the middle
strata was small compared to significantly higher income growth amongst the poor
(from a large expansion in social grants) and the rich (through economic growth).
Furthermore, the proportion of total income accruing to the middle strata contracted
over the period, evidence of a ‘middle-class squeeze’. Non-income based measures of
welfare however reveal more progress for the middle-income strata over the period.