Economic Adjustment and Distributional Change: Income Inequality in Australia in the Eighties

Abstract

This paper reviews a range of evidence on the developments in inequality and poverty in Australia during the 1980s. It begins by describing the policy context against which those developments occurred, focusing initially on an account of the main features of wage, tax and transfer policies. This is followed by an overview of economic performance in Australia compared with the OECD region as a whole, and a more detailed account of specific labour market developments. Several aspects of the trends in income inequality are then described, including the change in mean incomes, in aggregate and by income unit type, as well as distributional measures of the change in the degree of inequality of gross income, net income and equivalent net individual income. A decomposition of overall income inequality by income unit type and according to the number of earners in the unit reveals that inequality within groups contributed more to overall inequality than inequality between groups, and that the change in within-group inequality dominated the change in between-group inequality over the period. Finally, the paper uses the Henderson poverty line framework to estimate the trend in relative poverty, both before and after housing costs. The sensitivity of these estimates to variations in the level of the poverty line is then explored, this revealing that the estimated rise in poverty does not depend upon the use of a specific income benchmark to measure poverty.