Answer to Question #215143 in Finance for Precilla

Question #215143

Question 2 (25 Marks

Define social security, critically discuss the effects of social grants on incomes and welfare

Expert's answer

Meaning of Social Security

Social security is a system in which the government distributes money to specific categories of people regularly, such as sick, unemployed, or have no other source of income.

Effects of Social Grants on Incomes and Welfare

The introduction and expansion of social subsidies have helped relieve the hereditary burden of poverty, thanks to modest economic growth and a corresponding increase in per capita household income. In post-apartheid South Africa, however, income inequality has remained persistently high, and the role of these grants in reducing inequality is uncertain. To examine the impact of a change in these government transfers on inequality, the National Household Survey data from 1993 to 2008 and the primary income inequality decomposition methodologies were employed. This case study in South Africa provides for a comparison of these income inequality decomposition methodologies.

Social support for the elderly has made a significant contribution to reducing poverty, but it has not reduced income disparity. Social protection initiatives aimed at childminders of disadvantaged children, on the other hand, had an equalizing effect. We can now net out the influence of changes in household composition on inequality using more modern decomposition techniques. This has been found to have a significant reduction in the direct impact of social payments on inequality.

Social grants give potential job seekers the resources and financial security they need to pursue high-risk or high-reward opportunities. Living in a household that receives social assistance is linked to a greater rate of employment success. It stifles labor force participation by lowering the opportunity cost of not working and giving potential workers the means and financial security they need to pursue high-risk/high-reward job opportunities.

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