This chapter explores two angles on labour markets and inequality in South Africa. Have changes in the labour market helped or hindered inequality and poverty alleviation, and have government social policies ameliorated or worsened this situation? Increasing labour participation in the 1990s combined with sluggish growth in labour demand and skill-biased technical change resulted in rising unemployment with new entrants, in particular, African women and the youth, making up the bulk of the unemployed. This rise in zero earners as well as increasing earnings inequality are shown to be the main drivers of South Africa’s rising inequality. While there is little evidence that labour market institutions are particularly inflexible, they have not protected workers or facilitated dynamic adjustments. Access to education has increased remarkably with a large commitment of public resources. However, the quality of this education remains highly heterogeneous. Given South Africa’s skills situation, this has made it hard for new participants to find employment. There is a need for further education reform that focuses on quality rather than access. Despite this bleak picture of the labour market, poverty has decreased, mainly due to an extensive expansion of social grants and increased provision of basic services.