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Aggregate income and expenditure
Aggregate measures of household income and expenditure provide a broad picture of the economic wellbeing of Australians, but it is also of interest to examine the extent to which economic wellbeing differs between different groups within society. The sources used to compile the national accounts usually do not provide the detail needed to undertake such analysis. Instead, data need to be collected in household surveys such as the surveys of income and expenditure periodically conducted by the ABS. However, the surveys do not collect information from people living in institutions such as boarding houses, nursing homes, gaols, etc.
Tables 7.2 and 7.3 provide a number of indicators of income distribution derived from the Survey of Income and Housing Costs. The preparation of measures to describe differences in economic wellbeing presents a number of conceptual and practical challenges.
The main determinant of a person's economic wellbeing is usually the income to which they have access, either directly or as a member of a family in which income is shared. But some people have access to savings from past income or other sources of wealth, and low levels of income may not imply low levels of economic wellbeing. Similarly, proprietors of unincorporated businesses who report low or even negative business income may not be experiencing low levels of economic wellbeing. Their business income is defined as their net profit (or loss), but the business may expect, and be financed to cope with, a period of low income such as that associated with a poor season or temporary high costs flowing from business start up or expansion. Studies have shown that households reporting very low incomes also often report expenditure levels that are higher than households with slightly higher incomes. Consequently, in the following tables, low-income households are defined to include those falling in the 10-30% range of the income distribution and exclude those falling in the bottom 10%.
Income can take a number of forms, some of which are difficult to quantify in household surveys. To date, ABS household surveys have usually been restricted to collecting cash income data and have not regularly collected comprehensive information on income received in the form of fringe benefits (including employer contributions to employee superannuation), nor the notional income that can be conceived of as being received by people who own their own homes.
Relative economic wellbeing also reflects relative economic needs. Most importantly, people sharing accommodation will not normally need as much income to attain a given standard of living as people living alone. In order to reflect the sharing of income between family members and to enable adjustment for the lower economic needs of people sharing accommodation, the following analysis is on an equivalised income per household basis rather than an income per capita basis. Equivalising income estimates is a means of standardising them to take account of the varying size and composition of households.
Table 7.2 shows some of the measures more commonly used to assess the distribution of income. Most of the movements have been small, showing little or no overall change in the level of income inequality among households during the period 1994-95 to 1997-98. Real income increased for all groups of households during the period. Real income of the low-income households increased by 5%, with a 5% increase for the middle income group and 6% for the high income group. Similarly there have not been significant changes in the share of income received by high and low-income households.
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 one (0 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.
Table 7.2 spans the period 1994-95 to 1997-98. Estimates for more recent periods are currently under review (see the article 'Household Income and its Distribution' in Australian Economic Indicators, April 2001 (1350.0).
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 table 7.3, 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.