Income Inequality in Australia: Causes and Trends

This article discusses the causes and trends of income inequality in Australia. It explores the impact of job polarisation, government policies, and economic reforms on income distribution. The article also examines how income inequality is measured and its implications for the society. Read more on Desklib.

13 February 2019
Economics
Australia Today: An Introduction to Australia

ECONOMICS 1
The measures of inequality are significant to be known in order to gain an insight into the
distribution of the economic resources to the members of the community. In addition, the
study of the same is also important as it affects the various other elements of the society
namely the economic efficiency and population health. Until recently, it was a widespread
belief in the society of Australia that there exists greater equality of income as compared to
the economies of that of the United States, Canada, and the UK. Australia’s traditional
centralised wage fixing system combined with the low employment rates during the decades
of the 1950s and 1960s had backed the said belief. However, the mid-1970s witnessed a
weakening of the greater income equality in Australia, similar to the lines of most of the
Organisation for Economic Cooperation and Development (OECD) countries (Wilkins,
2015). The levels of the income inequalities in the OECD countries are consistently on the
rise and are stated to be also driven by the global financial crisis followed by the collapse of
the Lehmann Brothers in 2008. Over the years, the phenomena of the economic segregation
of Australian cities have led to a number of debates among the experts. The work is aimed at
evaluating the possible causes that led to the said inequality. The evaluation will take into
account government policies and other political and economic factors.
Over the last years, there have been varied phases of income growth and inequality trends in
the income and distribution in Australia. For instance, the period in the early 1980s witnessed
slow rising trends in the income, and the slow income inequality coming into the picture. The
period of the late 1990s witnessed a rapid increase in the real income and income inequalities.
It must be noted that overall trends are a result of different reasons, which are complex to
study and understand. The said study is broad and involves an analysis of various social and
political factors. Most of the literature on these lines is based on the work of Wilkinson and
Pickett in the year 2009 in The Spirit Level.
Australian is often referred to as the miracle economy. This is because of the second highest
increase in the average real disposable income among all the OECD countries (Goot, 2013).
In order to study the reasons for income inequality, it is important to have access to data on
an individual or household incomes (Dollman et. al, 2015). However, when it comes to the
Australian context, it must be noted that the agency on which the source of data is largely
dependent, as stated in most of the researches is the Australian Bureau of Statistics (ABS).
Some of the primary components that comprise the data are the household income surveys
and the household expenditure survey. In addition to this, some of the other data can be
extracted from the Household, Income and Labour Dynamics and the records of the taxation

ECONOMICS 2
data. It is essential to note that only the surveys post-1982 are stated to be comprehensive for
the purpose of the study. A number of major changes have occurred over the years in the
methodology, which is also a major cause of the in equal income trends over the years. One
of recent significant change in the methodology in the year 2007-08, where the ABS had
adopted new international standards in addition to the revision of its standards for household
income statistics. As a result of which, the year 2007-08 marked an increase of $ 85, which
equalised to about 5 per cent in the mean weekly gross household income.
One of the main reasons for the income inequality in Australia can be stated to be changes in
the tax and welfare regimes in the country. The taxation statistics are stated to be one of the
important tools to measure the levels of income inequality in a nation because of the fact that
the same allows one to investigate inequality over a much longer period, by the aid of the
annual data (Kennedy et. al, 2017). It is significant to note that the taxation policy and
changes capture a number of high-income earners. Thus, the same is regarded as a more
accurate indicator of inequality as compared to other measures. The period from the year
1979 to 2004 witnessed an inequality in the market because of the increase in the social
assistance provided by the government. This was further initiated because of the higher tax
rates that were introduced to counter the job and income polarisation, as explained in the next
segment of the work. However, it must be noted that the gap in the income levels widened
even more in the year 1990s. This was due to the failure of the attempts to level the job
polarisation by the means of tax regimes and social welfare programmes.
Income inequality is referred to as the gap that has arisen because of what individuals could
have received, had the incomes were distributed equally; and what is actually distributed to
them. It is significant to note that income inequality is a relative concept. One of the chief
reasons that form the base for income inequality in the nation is the "Job Polarisation." Job
polarisation is referred to like the changes in the composition structure of the employment,
where there is a decline in the share of middle-skill jobs, and a contrasting increase in the
high skill jobs and low skill jobs (Wilkins, 2014). One of the explanations of the said
phenomena is the rise in the technological advancements driven by the globalisation. The
innovation and technological advancements lead to the effective complementing of the
interactive tasks of the highly skilled workforce, which further increases their demand and
wages. In contrast to this, the new technology leads to the replacement of the routine and
manual tasks, which fall in the work area of the middle-skill workers. Consequently, there is
a fall in the demand for the middle level of skilled labour in the country. It is significant to

ECONOMICS 3
note that the manual tasks that were undertaken by the low skilled labours could not have
been performed by the aid of computers. Thus, the demand for the low skilled labour more or
less remained unaffected. The following graph describes the job polarisation in Australia
among the ten major occupation groups between the year 1966 and 2011. Thus, while there is
a considerable increase in the demand of the managers, professionals and personal care; there
is a fall in the demand for the jobs in the operators and the production department.
(Source: Coelli and Borland, 2016)
One of the other primary reason that contributed towards the income inequality in the nation
was the economic crisis of 1974-1975. While the Australian trade union was in a winning
position of a case, the same combined with the rising inflation levels proved a crisis for the
economy of Australia. The event occurred when Australian society had polarised sharply.
While the society was structured by the strong and organized set of trade unions, the same
had defended in the response of the government's efforts to restrain the wages, in order to
attempt the equalisation of the overall wages. The period saw the political crisis in the form
of every group such as that of business organisations, unions and government too were in a
race to defend their own interest. The political unrest ended with the election of the new

ECONOMICS 4
government in the year 1983 and the signing of an agreement between in order to the
protection of the real wages and the enhancement of the social wage.
The overall inequality in Australian society and economy can also be examined in terms of
wealth inequality. It must be noted that wealth is a potential indicator of wellbeing as it
highlights the significant role of the housing prices. It is again significant to note that
Australian response to economic shocks through tax regimes and policy changes was
characterised by the higher unemployment rate among men was compensated through the
benefits on the line of compensation (Kennedy et. al, 2017). The experts regard this approach
as not very superior though.
One of the other major reasons that led to the inequality in the income and distribution trends
was the policy changes of the government. The period beginning from the early 1970s until
the 1980s was subject to a number of policy regimes by the successive governments in order
to bring about the reforms in the nation. Some of the policy changes were in the form of
deregulation of the financial services sector, reduction of the high protective tariffs on
imported goods, privatization of the government-owned industries, and the floatation of the
Australian dollar (Whiteford, 2015). This was in addition to the increased efficiency between
federal and state governments and the combined efforts towards the reformation of the
taxation system marked by the introduction of the Goods and Services Tax. It must be noted
that these reforms took gestation period in order to reveal their real results, which led to the
labelling of the decades of 1970 to 1990 as slow and disappointing in terms of the growth and
real yields.
In addition to the above, the following points are further noteworthy in the Australian
context. In the event of the recent Global Financial Crisis leading to the greatest depression in
the world after the year 2008, Australia together with Korea and Poland, were the only
countries among the OECD countries that were not in the list of the negative trends in the real
GDP growth for the year 2008-09 (OECD, 2011b). Further to note, that the positive trends
were further followed increasing trends in the living standards of Australia. The same is
evident by the 2.8 per cent increase annually in the real per capita household disposable
income for Australia between the year 2002 and 2011 (Sheehan and Gregory, 2011).
Thus, as per the discussions conducted in the previous parts, it can be concluded that a
number of factors are needed to be studied together in order to study the overall trends in the
income and living standards of a region. The work attempted to analyse the factors that

ECONOMICS 5
contribute towards the overall changes and various trends in the income, distribution and
other economic and financial vitals in the context of Australia. The first segment of the work
shed light on the various trends that have occurred over the years in the past years in the
Australian economy, which are not necessarily downwards, as the general perception
becomes when talked about the inequality in the incomes. The work shed light on the fact
that Australia is one of the most stable economies among the OECD by the virtue of
avoidance of negative GDP in the phase of the economic depression of the year 2008. In
addition, the work also evaluated the various reasons that fuelled the inequality in income
trends after the 1970s. These were the job polarisation, leading to falling in demand the
wages of middle-skilled employees, the government's effort to stabilize the situation by tax
regimes, the political unrest among the trade unions in defence of the above and others. Apart
from this, one major reason for the income inequality was the introduction of a number of
economic steps the results of which were visible post the depression era. Lastly, the adoption
of new standards to measure the income and distribution has also led to the significant
changes in the income and economic growth patterns in a positive manner. Thus, it would be
right to state that while some trends have been negative, some have been positive as well. The
same depends upon the policy introduction and overall approach of the government of a
nation.

ECONOMICS 6
References
Coelli, M. and Borland, J. (2016) Job polarisation and earnings inequality in Australia.
Economic Record, 92(296), pp. 1-27.
Goot, M. (2013) ‘The New Millennium’, in Stuart Macintyre and Alison Bashford (eds) The
Cambridge History of Australia, 2, Cambridge: Cambridge University Press.
Dollman, R., Kaplan, G., La Cava, G. and Stone, T. (2015) Household economic inequality
in Australia (No. rdp 2015-15). Australia: Reserve Bank of Australia.
Kennedy, T., Rae, M., Sheridan, A. and Valadkhani, A. (2017) Reducing gender wage
inequality increases economic prosperity for all: Insights from Australia. Economic Analysis
and Policy, 55, pp. 14-24.
Kennedy, T., Smyth, R., Valadkhani, A. and Chen, G. (2017) Does income inequality hinder
economic growth? New evidence using Australian taxation statistics. Economic
Modelling, 65, pp. 119-128.
OECD (2011b) Economic Outlook, OECD, Paris.
Sheehan, P. and Gregory, R.G. (2011) The Resources Boom and Macroeconomic Policy in
Australia, Australian Economic Report No. 1, Centre for Strategic Economic Studies,
Melbourne: Victoria University.
Whiteford, P. (2015) Inequality and its socioeconomic impacts. Australian Economic
Review, 48(1), pp. 83-92.
Wilkins, R. (2014) Evaluating the Evidence on Income Inequality in Australia in the
2000s. Economic Record, 90(288), pp. 63-89.
Wilkins, R. (2015) Measuring income inequality in Australia. Australian Economic Review,
48(1), pp. 93-102.