Income Inequality in Australia: Causes and Trends

13 February 2019

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