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1370.0 - Measuring Australia's Progress, 2002  
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Contents >> The supplementary commentaries >> Economic disadvantage and inequality: Looking more closely

Both headline commentaries National income and Economic disadvantage and inequality showed appreciable growth in the average income of Australian households through the 1990s. During the period 1994-95 to 1997-98 the rate of increase for low income households was much the same as for households with higher incomes. This commentary provides further perspectives on the distribution of income among households in Australia and how that changed between 1994-95 and 1997-98. The commentary also provides more information about the most economically disadvantaged households in Australia.



THE DISTRIBUTION OF HOUSEHOLD INCOME

There are many measures used to assess the distribution of income, of which the more commonly used are presented in the table on the following page. Most of the movements shown have been small and differences across the income distribution are not statistically significant,(SEE FOOTNOTE 1) showing little or no overall change in the level of income inequality among households during the period 1994-95 and 1997-98.

The average income measures given in the commentary Economic disadvantage and inequality (presented in the headline graph) are shown again in the first rows of the following table. The next measure shown in the table focuses on the relationship between the income levels of those at different points of the distribution, namely at the 20th, 50th and 80th percentiles from the bottom of the distribution. As can be seen, the trends over time of the two series are very similar - percentage increases between 1994-95 and 1997-98 in the income of lower income households have generally been very similar to those in the middle and towards the top of the distribution.

Changes in incomes of the respective (low, middle and high) income groups relative to each other are highlighted by the ratios of incomes of households at the respective percentiles. For instance, when comparing households towards the top of the distribution with those at the bottom (illustrated by the P90/P10 and P80/P20 ratios) it is apparent that the households at the bottom of the distribution have generally maintained their position compared to those at the top (the ratios have remained much the same). In addition, as seen by the P20/P50 ratio (i.e. the income of those at the twentieth percentile compared to those exactly in the middle of the distribution), the relative position of the more disadvantaged group compared to those in the middle of the distribution also remained virtually the same. Moreover, when seen in terms of the changes in the share of all income received by high and low income households, the changes have not been significant. In 1997-98 the share of all household income of the 20% of households with low incomes (i.e. those in the second and third deciles) was 10% while that for households at the top of the distribution, the highest 20% of households, was 39%. These proportions were the same as in 1994-95.

The Gini coefficient (a commonly used summary measure of income distribution) also shows minimal change. The Gini coefficient is a single number that summarises the distribution. It takes values between zero and 1 - higher values indicate greater inequality in the distribution of income; lower values indicate greater equality. While a little lower during the intervening years the coefficient in both 1994-95 and 1997-98 was the same (at 0.32).

Other commonly used indicators of economic disadvantage are the proportion of households with income less than half the average weekly equivalised disposable income of all households and half the median weekly equivalised disposable income of all households. These income cut-offs are sometimes used as poverty lines.(SEE FOOTNOTE 3)

The number of households below the half median indicator shows a small increase between 1994-95 and 1997-98 (2%), but this change is not statistically significant. In addition, this indicator needs to be used with caution for two reasons. First, there is a considerable clustering of households with income relatively close to the half median value of income, reflecting the fact that the half median value is close to the value of benefits provided by the age pension and other benefits under the social security system. A relatively small change in the benefits available from social security can result in relatively large changes in the percentages shown by the half median indicator, and therefore it has the potential to be relatively unstable. Second, many of the households in the first decile and reporting very low incomes are not believed to be the most economically disadvantaged (see footnote 1 of Economic disadvantage and inequality). Therefore changes in the half median measure may also be influenced by changes to the proportion of households reporting very low incomes which are not economically disadvantaged.

While the increase from 1994-95 to 1997-98 in the number of households receiving less than half the mean household weekly income is statistically significant (up 5%), as with the median, the mean is also affected by the incomes of households in the lowest income decile and interpretation of change in this indicator can be difficult.


HOUSEHOLD AMENITIES

An indicator of economic disadvantage is whether or not households have access to basic amenities which might be considered necessary for a comfortable life. The most recently available data, from several ABS surveys,(SEE FOOTNOTE 2) shows that almost all households in Australia have many of the amenities that might be expected to be normal.

These amenities include a working bath/shower connection, a toilet, working cooking facilities, and a working refrigerator (more than 98% of households in 1999), at least one television (99% of households in 1997), and a telephone (97.5% in 1996). Not all households owned a registered motor vehicle (10% did not have one) and the most disadvantaged (in terms of the socioeconomic status of the areas in which they live) were less likely to own a personal computer. In 1997, 26% of households in the lowest quintile (20%) of areas (when ranked by socioeconomic status of the area in which they lived) owned a personal computer, and 7% had Internet access compared to 53% and 20% for the households in the top 20% of areas when ranked by socioeconomic status. It would also be expected that the quality of the amenities owned by higher income households would generally be better than those owned by low income households.

GROUPS THAT HAVE BEEN MISSED

Data available from ABS household collections are likely to miss some of the most disadvantaged groups, such as homeless people sleeping out and people staying in boarding houses or crisis accommodation provided by welfare agencies to help those in need. Information about the exact numbers of people in such circumstances, and about their circumstances, is difficult to obtain, partly because such groups are highly mobile. See Social attachment for more information about homelessness.

Selected measures of household disposable income(a)

Change
1994-95
Year
to 1997-98


IndicatorUnit
1994-95
1995-96
1996-97
1997-98
Absolute
%

Equivalised mean weekly income for selected groups of households(b)
Low income(c)$
408
408
427
427
19
4.7
Middle income(d)$
687
680
707
720
33
4.9
High income(e)$
1,556
1,518
1,561
1,642
86
5.5
Equivalised income of households at top of selected income percentiles(b)
20th(P20)$
402
404
419
420
18
4.4
50th(P50)$
687
676
704
716
29
4.3
80th(P80)$
1,122
1,121
1,160
1,180
58
5.2
Ratios of incomes of households at top of selected income percentiles
P90/P10Ratio
3.92
3.90
3.84
3.96
0.04
1.0
P80/P20Ratio
2.79
2.77
2.77
2.81
0.02
0.7
P80/P50Ratio
1.63
1.66
1.65
1.65
0.02
1.2
P20/P50Ratio
0.59
0.60
0.60
0.59
0.00
0.0
Share of total income received by households with
High incomes(e)%
39.1
38.6
38.3
39.2
0.1
0.3
Low incomes(c)%
10.2
10.4
10.5
10.2
0.0
0.0
Gini coefficient(f)Ratio
0.320
0.315
0.309
0.322
0.002
0.6
Households with equivalised weekly income below
Half the mean weekly income%
18.7
17.6
17.3
19.6
0.9
4.8
Half the median weekly income%
8.4
8.6
7.5
8.6
0.2
2.4

(a) All estimates have been adjusted using the OECD equivalence scales (b) Adjusted for changes in the Consumer Price Index; values are given in 1997-98 dollars. (c) Households in the 2nd and 3rd income deciles after being ranked by their equivalised income. (d) Households in the middle income quintile (5th and 6th deciles) after being ranked by their equivalised income. (e) Households in the top income quintile (9th and 10th deciles) after being ranked by their equivalised income. (f) A summary measure of income distribution between 0 and 1. If the measure approaches the value of 1 income inequality increases and vice versa.
Source: Data available on request, Surveys of Income and Housing Costs.


LOW AND HIGH INCOME HOUSEHOLDS

The circumstances associated with economic disadvantage among households are well known. These include a lack of savings or other assets and the absence of a substantial income from sources other than pensions and benefits provided by the social security system. People whose major source of income is from pensions and benefits include those who are unemployed, those unable to work due to disability, illness or old age, or those with caring responsibilities for others (such as persons with disabilities or dependent children). Aside from factors associated with life-cycle stage (i.e. relative youth or old age), not having a paid job or having a low paid job is often associated with lower levels of educational attainment and limited job opportunities within the areas in which people live. It is also often associated with problems in other aspects of life, including those related to physical and mental health and the size and strength of people's social networks. Of course changes in life fortunes can also be factors (some people can benefit from windfall gains while others can suffer unexpected losses through crimes committed against them or their own misadventure).

Comparing households of various types in low and high income groups helps to characterise the types of households most likely to be economically disadvantaged. Households are classified in several ways in the table above, presenting data for 1997-98. The patterns shown could be expected to be broadly representative of the patterns seen throughout the 1990s.

There are some substantial differences in the representation of certain household composition types in low and high income groups. One parent families in one family households with dependent children, for example, were over-represented (11%) in the low income group (those in the second and third lowest deciles of the income distribution) and under-represented (1%) in the highest income group (those with income in the top two deciles of the income distribution). Possibly associated with their age and employment circumstances, couples without children were over-represented in the highest income group and under-represented in the middle of the income distribution. Lone person households were over-represented in the lowest income group and many would have been receiving the age pension.

In contrast, while significant proportions of households in the lowest and highest income groups were couples in one family households with dependent children only (18% in both groups), households of this type were over-represented among middle income households (34% of all middle income households).

In terms of the principal source of household income, households in the low income group (i.e. with income in the second and third lowest deciles of the income distribution) were, as might be expected, most likely to have government pensions and allowances as their major source of income (79% of households). In sharp contrast to those in the low income group, most households (93%) in the highest income group had employment related income (from wages or salaries or their own unincorporated business) as their principal source of income.

The number of earners (i.e. with employment related income) present in a household is an important determinant of household income. Clearly those with two or more earners will tend to have higher incomes than those with only one earner. In 1997-98, the average number of earners per household in the low income group was 0.3 persons, which contrasts with 1.2 and 1.9 earners per household in the middle and high income groups respectively.

Household characteristics of selected income groups(a), 1997-98

Low income
Middle income
High income
All
(2nd and 3rd
(5th and 6th
(9th and 10th
households
Household characteristics
deciles)
deciles)
deciles)

%
%
%
%
Household composition (selected types)
One parent family in one family households with dependent children
11
8
1
7
Couples in one family households
Couples without children
25
22
31
23
Couples with dependent children only
18
34
18
25
Other couples in one family households
5
14
17
12
Other family households
4
6
6
6
Non-family households
Lone persons
36
13
18
23
Group households
1
5
7
4
Total
100
100
100
100
Principal source of household income
Wages and salaries
13
66
86
54
Own unincorporated business
4
6
8
6
Government pensions and allowances
79
15
1
30
Other sources
5
13
6
8
Total
100
100
100
(b)100

no.
no.
no.
no.
Average number of earners(c)
0.3
1.2
1.9
1.1

Equivalised disposable weekly income at lower and upper bounds of the income range(d)
$
$
$
$
At bottom of the income range
369
597
1,180
. .
At the top of the income range
501
853
. .
. .

(a) Households have been ranked from high to low income groups according to their equivalised disposable income. (b) Total includes households with zero or negative income. (c) Persons receiving income from wages or salary or have their own unincorporated business. (d) Equivalised incomes assume that all households are composed of a couple with two children aged less than 15 years.
Source: Data available on request, Survey of Income and Housing Costs 1997-98.


ABORIGINAL AND TORRES STRAIT ISLANDER PEOPLES

Data from the 1996 Census of Population and Housing show the average household income of households with at least one Aboriginal or Torres Strait Islander person aged 15 years or over to be well below that of households in the wider community. The household income per capita in 1996 was $158 per person per week for households which included at least one adult Indigenous Australian, compared to $310 per person per week for all households.

In terms of those who were employed at the time of the Census, the median gross weekly income of Indigenous Australians ($365) was substantially less than the median of non-Indigenous Australians ($493).


FOOTNOTES

1 Differences in the various estimates of income and income distribution, when compared over time, may or may not be significant as there are errors that can arise as a result of the data being obtained from sample surveys. Tests of significance show that there is a high level of confidence that there have been no real changes among most of the measures used in this commentary to compare income distributions from 1994-95 to 1997-98.

2 For details of data sources used and further information about the distribution of household amenities see ABS 2001, "Household Amenities", in Australian Bureau of Statistics 2001, Australian Social Trends 2001, Cat. no. 4102.0, ABS, Canberra.

3 Harding A., Lloyd R., and Greenwell H. 2001, Financial Disadvantage in Australia 1990 to 2000: The Persistence of Poverty in a Decade of Growth, NATSEM and The Smith Family, Camperdown, NSW.

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