Income Inequality in Australia and its Impacts

Research summary

The GINI Project studies the economic and educational drivers and the social, cultural and political impacts of increasing inequality with novel contributions on the measurement of income, wealth and education inequality.

GINI combines an interdisciplinary analysis that draws on economics, sociology, political science and health studies, with improved methodologies, uniform measurement, wide country coverage, a clear policy dimension and broad dissemination. The project operates in a framework of policy-oriented debate and international comparisons across all EU countries (except Cyprus and Malta), the USA, Japan, Canada and Australia.

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Australian experience with inequality trends shows complex patterns over time and between groups. Trends in inequality in Australia are the consequence of a wide range of causal factors, and it is likely that different factors will have different impacts. This suggests that apparently similar trends in inequality in different periods may actually be associated with different outcomes, so that in attempting to understand the impacts of rising inequality it is important to analyse the causal factors in different periods.

Australian experience in the 1990s suggests that inequality rose significantly during a period of entry to and early recovery from a recession, which was accompanied by falling or stagnant real incomes. Inequality also grew significantly from the mid-2000s to the Global Recession, but this was accompanied by large rises in real incomes.

Many of the most negative aspects of the social impacts of inequality may in fact be symptoms of other underlying trends – the decline in labour force participation after the recessions of the 1980s and the 1990s and the apparent entrenchment of family joblessness. In this sense, disentangling what is an impact of rising inequality from what is a cause of inequality is not straightforward.

The only factor that seems to have operated continuously to increase inequality in Australia since the early 1980s is increases in wage disparities. While the rate of increase has varied over time, the increase in wage disparities has been steady. This is likely to be partly explained by changes to Australia’s wage fixing institutions, although other factors are also involved, since the trend is observed in other countries with different institutional settings.

It is also important to note that in the Australian context inequality is much more influenced by access to employment rather than wage disparities for those employed. Earnings are by far the largest source of household income. The earnings gap between households is partly a function of disparities in wage rates, but much more importantly of differences in hours of work and whether households have any paid work at all.

It is also significant that in the 1980s and early 1990s, the effectiveness of government redistribution policy increased and moderated the rise in market income inequality. In contrast from the mid-1990s to 2008 government policies became less effective, partly because there was less need during a period of strong employment and income growth, but also due to deliberate government policy decisions, particularly in regard to tax cuts that favoured higher income groups (Goot, 2013).

The prospects for future inequality trends are unclear. Wage disparities have continued to widen for most of the last 30 years, and there is little reason to think that this trend will halt or reverse itself. Underemployment continues to exacerbate earnings disparities, and was slow to improve during the period of very strong employment growth after 2000. Indigenous disadvantage remains profound.

Other trends have been positive, for example, the growth in employment among lower income groups since 2000. There is still considerable scope to improve this and further reduce family joblessness, which is a government priority, although the long-term jobless do suffer from complex combinations of disadvantage which may slow further progress. The growth in educational attainment may continue to have positive impacts for some time to come, and further reducing educational inequalities are also high on the policy agenda.

A major challenge for Australian social policy in coming decades will be to seek to insure that the benefits of prosperity are widely shared if economic growth continues, but act to offset the negative consequences if there is a downturn.

Contributing to Debate

The results of the research have been presented at Conferences and to policy makers including at a Parliamentary Library Vital Issues Seminar on10 October 2012, to the Secretary’s Seminar Series, Department of Prime Minister and Cabinet , 13 June 2013, to Australian Government Leadership Network conferences, Gold Coast, 19 July; Melbourne, 16 August; Sydney, 11 October 2013 and to the 6th Annual Conference of the China Social Welfare Research Committee, Nanjing University, 6 July 2014. The research also formed the basis of a Submission to the Senate Standing Committee on Community Affairs Inquiry into the Extent of Income Inequality in Australia.

Funding Agency

This research was funded by the European Commission under the Growing Inequalities’ Impacts (GINI) project.

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