Inequalities in income and wealth are inevitable: some people earn more than others, consumption and investment behaviours differ, and life circumstances vary. Such inequalities may provide incentives and rewards for people to contribute more actively to social and economic life. However, large and conspicuous differences in the economic resources and levels of consumption of the rich and the poor can affect social cohesion. The histories of various population groups throughout the world give testimony to the fact that gross inequalities in levels of income and wealth are associated with social conflict and political instability.
As a result the extent of economic inequality within society, and especially whether it is increasing or decreasing over time, is of considerable interest to governments, welfare organisations and the community as a whole. The effect of the tax-transfer system administered by governments is of particular importance in this regard as it is the primary mechanism by which economic resources, obtained by individuals from their market activities, are redistributed. Also, the factors which lead to a greater preponderance of low incomes, such as rising levels of unemployment or the ageing of the population (with more people becoming dependent on social security payments), need to be understood because of their different policy consequences.
Absolute deprivation, in terms of access to goods and services, is rare in Australia as social transfers help to ensure that all people have food, clothing and shelter. Nevertheless many people are still poor relative to others in society. The extent of such relative poverty is a concern because it raises issues of social justice as well as the need to address the many problems that poor people can have. Often associated with poverty are problems such as a lack of participation in work, drug taking, poor health, poor education, crime and lack of opportunity for children. Knowledge about the reasons for poverty, the extent to which individuals stay in poverty for prolonged periods of time, and how it affects people's lives, can influence social policies directed at improving living standards.
PROMOTING ECONOMIC GROWTH
Maintaining reasonable levels of economic growth is a key concern of governments because it is through growth that many people are able to increase their living standards. To this end governments and other bodies seek to obtain information about the performance of the whole economy and its many parts to help evaluate the need for new policies to promote growth. A great deal of the information that is sought relates to the operation of business enterprises and institutions that make up the private and public sectors of the economy. However, economic policy development is also informed by the economic activities of individuals and households. For example, through their changing patterns of consumption and saving, households help determine levels of demand for goods and services. Information that monitors levels of income growth by sources of income (especially earnings), patterns of consumption, levels of consumer debt, levels of savings and investment and other economic activities of people (referred to as the household sector of the economy) provides input into the continuous task of shaping and reshaping fiscal and monetary policies relating to management of the economy.
Set against this focus on economic growth are concerns about the negative impact that some forms of economic growth can have on the natural environment and the fact that growth may not be sustainable because many resources are limited. Another concern is whether there is undue attention to economic growth, resulting in too little attention to other dimensions of wellbeing. Some argue that the emphasis on progress should be in other areas of wellbeing rather than material gain with which economic growth is often associated. There is also a concern that growth can lead to increases in levels of income inequality and greater inequality in the distribution of wealth.
EFFECTIVENESS OF GOVERNMENT INCOME REDISTRIBUTION
As noted above, governments play a major role in re-distributing economic resources within the community. This is largely organised through the collection of taxes and through expenditures on specific services such as education, health and housing and on direct income support payments to people with limited means. Tax-transfer systems are typically progressive. In other words they are designed to reduce the level of inequality in the distribution of resources by taking more from the better off and giving to those less well off. The extent and form of any redistribution can have important implications for the wellbeing of particular groups within the population and so raise issues of social justice and equity.
In addition to general issues of fairness there are many policy related issues associated with the redistribution of income that are of interest especially as they can impact on social behaviours. For example there have been concerns that jobless people looking for work may not have a strong incentive to take up a job if unemployment benefit payments are relatively high compared to the after tax income of a low paying job. In such cases, the difference between the benefits and the net earnings may not be adequate to cover the cost of working. Understanding changes in social behaviours that might be linked to particular tax/benefit settings underpins reviews of the effectiveness of such policies.
LEVELS OF RENUMERATION
Most people rely on wages and salaries as their main source of income, so their economic wellbeing largely depends on the level of remuneration. It naturally follows that matters associated with earnings are issues of particular concern to large numbers of people. Such issues include the relative value of different jobs, whether award rates of pay are fair, whether pay rates are keeping up with the changing cost of living, and whether the forms in which pay is provided (in cash or in kind) are suitable. Negotiations concerning these matters often occur at the enterprise level between the parties directly concerned, namely employers and employees. However, while playing less of a role than was the case when negotiations over pay and conditions were more highly centralised, representative groups such as trade unions, industry associations, governments and their tribunals, also work to meet the interests of their constituents in determining appropriate levels of remuneration and need information to support these negotiations.
Helping to ensure that people accumulate sufficient wealth through their working life to support themselves in retirement has become a matter of growing public policy concern. This is because of the huge impact that a rapidly ageing population can have on the demand for government funded age pensions and health benefit payments and because there is concern that future generations of taxpayers will not be able to meet these additional costs. Information that describes the saving patterns of individuals, especially in the form of superannuation, and the contribution that employers are making to such mandatory saving schemes, is vital to understanding future costs and to determining the need for further programs to encourage people to save for their retirement.
SOCIAL VALUES CONCERNING THE ACQUISITION OF ECONOMIC RESOURCES
Changing social attitudes to maximising personal economic wellbeing may be an important factor in shaping a wide range of social outcomes relating to each of the other areas of social concern, for example, declining fertility, weaker family relationships, poorer health, further education etc. This is because there can be opportunity costs associated with making money. For instance having an interest in getting a high paying job may mean a person spends a longer time in education and that they delay or decide not to have a family, or, once working, that they spend long hours at work and give less time to other matters such as socialising, looking after their health or to family matters. Observing social trends in these trade-offs and understanding causal relationships can help shape policies to overcome perceived social problems.
ACCESS TO PARTICULAR RESOURCES
Access to resources is an important determinant of economic wellbeing and need not only be viewed in terms of the amount of income people receive. At a more basic level, economic wellbeing can also be considered in terms of whether people have paid employment or not, or whether they have access to opportunities that may enhance their economic wellbeing. In terms of gaining an income, these include the opportunities people may have for obtaining an education or finding employment. People may be restricted from gaining access to particular resources for all sorts of reasons. These include the availability of those resources in the area in which they live, as well as their personal circumstances such as whether they have a disability or not or, from the point of view of providers, whether people are eligible to use those resources or not.
There are many examples of inequality in access to particular goods and services. One concern is the divide between people who have access to emergent information and telecommunication technologies and those who do not. Some of these technologies have helped to reduce pre-existing inequalities. However, in an economy increasingly dependent on such facilities the gap between the haves and have nots may also create new divisions affecting the relative economic wellbeing of people. Issues of access and equity to other services such as health, education and housing are discussed in the other chapters of this book. However, each may be viewed as a matter associated with the distribution of economic resources.
This page last updated 31 July 2006