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Decoding Australia's Income Inequality Shifts

Delve into the fluctuating income distribution trends in Australia, exploring data sources, factors impacting inequality, and future projections post-2010. Analyze wage, non-wage, and market income influences and their roles in shaping inequality dynamics.

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Decoding Australia's Income Inequality Shifts

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  1. Do we really know what happened to income inequality in Australia over the last decade?Roger WilkinsParliamentary Library Vital Issues Seminar10 October 2012

  2. Introduction • Aiming to describe what has happened to the distribution of income in Australia, primarily focusing on equivalised disposable income in the decade to 2010 • Shouldn’t be difficult, but it is • Compare alternative data sources • Look at drivers of inequality trends for several different income series • Identify where they agree and where they do not

  3. Data • ABS income surveys since 1994-95 • 11 surveys up to 2009-10 • Variation in frequency, sample frame and size, questionnaire content and survey methods • HILDA Survey • Panel study started in 2001 • 11 waves up to 2011 • Core questionnaire content stable and relatively little change in survey methods • Tax statistics (as per Atkinson and Leigh)

  4. Context: Sustained strong growth in household incomes (at least until recently)

  5. Inequality as per ABS published data

  6. There were, however, changes to ABS methods and concepts over the 2000-2010 period Examples: • Questions on salary sacrifice and other non-cash benefits (from 2003-04); instructions to respondents to include salary sacrifice in annual earnings (from 2007-08) • Currently weekly business and investment income based on estimates for current year instead of actual values in previous financial year (from 2003-04) • Explicit inclusion of dividend imputation credits (from 2003-04) • Inclusion in income of various irregular payments and lump sum payments (from 2007-08) • Moved to computer-assisted interviewing (from 2003-04) • Changes in sampling frame (2003-04, 2005-06) • Changes in benchmarks for weighting (1999-2000, 2002-03, 2005-06, 2007-08, 2009-10)

  7. Gini coefficients for notionally consistent ABS weekly income series

  8. Gini coefficients for notionally consistent ABS annual income series

  9. Comparisons with the HILDA Survey

  10. Comparisons of household survey data with tax data

  11. Sources of divergence between the three income series from the household surveys • Examine the effect of each of several income components on overall income inequality: • Compare the income distribution with and without the component • Look at effects of income taxes, government transfers, wage and salary income and non-wage market income • Also look a bit more closely at wage and salary income and non-wage market income • Helps us understand where the differences between income series are coming from (and where the series agree)

  12. Effects of income taxes on inequality

  13. Effects of government transfer payments on inequality (of gross income)

  14. Drivers of changes – Fiscal stimulus direct payments Effects of 2008-09 government 'bonus' payments - Equivalised disposable income (December 2010 prices) Source: HILDA Survey

  15. Inequality in household ‘market’ income(pre-tax pre-transfer income)

  16. Effects of wage and salary income on inequality(of gross income)

  17. Inequality of labour market earnings of employed people

  18. Household employment rates

  19. Effects of non-wage market income on inequality (of gross income)

  20. Equivalised non-wage market income

  21. Conclusions • Some ambiguity over what happened to the income distribution in Australia over the decade to 2009-10 • We can be reasonably confident of the following: • Relatively strong and broad-based household income growth • Inequality increased between 2004-05 and 2006-07, and decreased in 2008-09 (but conflicting evidence on magnitudes) • Government became less redistributive in the mid-2000s • Changes in the distribution of non-wage market income acted to increase inequality (but some disagreement on mechanism) • Less clear is what has happened to the distribution of wage and salary income across households (changes in earnings inequality and in the distribution of employment across households)

  22. What about since 2009-10 (and into the near future)? • Disposable income growth on average has continued (but distribution not known) • Taxes and benefits – changes will probably slightly reduce inequality (eg household assistance package) • Market income: investment returns low (ambiguous effects); not sure about wages, but employment has been falling, and this will increase inequality

  23. Some more recent evidence on household incomes… Sources: ABS National Accounts (Cat .No. 5206.0), ABS Consumer Price Index (Cat. No. 6401.0) and ABS Demographic Statistics (Cat. No. 3010.0)

  24. Labour market is flat… Source: ABS Labour force, Australia (Cat. No. 6202.0)

  25. Do we really know what happened to income inequality in Australia over the last decade?Roger WilkinsParliamentary Library Vital Issues Seminar10 October 2012

  26. Extra slides

  27. Focusing on low incomes...

  28. Top income shares – Household income

  29. Inequality of equivalised wage and salary income

  30. Inequality of equivalised non-wage market income

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