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Income Distribution: Interstate income inequality
There are considerable differences in average income unit incomes between Australia's States and Territories - largely associated with differences in employment levels as well as differences in the composition of the workforce (occupation, industry, educational qualifications) in each State and Territory. However, living costs also vary between different parts of Australia and this should be taken into account when considering the implications of interstate income inequality on living standards.
Wide disparity in State and Territory incomes
Among the States, in 1997-98, Western Australia had the highest mean weekly disposable income unit income (4% above the national average of $526); followed by New South Wales (2% above the national average); Queensland and Victoria (around average); Tasmania (13% below the national average); and South Australia (14% below the national average).
Among Australia's capital cities, Canberra and Darwin had the highest mean weekly disposable incomes (around 20% above the national average); followed by Sydney and Brisbane (10% above the national average); while Adelaide and Hobart had the lowest (8% and 11% below the national average).
With the exception of Western Australia, mean weekly disposable incomes were substantially higher in the capital city than in the rest of the State. The greatest disparities were in South Australia and New South Wales, where capital city incomes were around 30% higher than in the rest of the State.
Factors contributing to differences in income
Differences in average income levels between areas are partly due to differences in employment, unemployment, principal source of income and, for those in paid employment, differences in average earnings.
Those areas with the highest incomes in 1997-98 tended to have relatively high employment to population ratios; relatively low unemployment rates; and low levels of dependence on government pensions and allowances. Those areas with the lowest incomes tended to have relatively low employment to population ratios; high unemployment rates; and high levels of dependence on government pensions and allowances (generally associated with an older population profile).
For example, Canberra and Darwin, which had the highest capital city disposable incomes in 1997-98 (around $630 per week), also had the youngest populations (proportion aged 65 years and over, 8% and 4% respectively); the highest employment to population ratios (66% and 67% respectively); relatively low unemployment rates (7.5% and 5.0% respectively); and the lowest proportion of income units deriving most of their income from government pensions and allowances (16% and 17% respectively).
At the other end of the capital city income spectrum, Hobart and Adelaide (with mean weekly disposable incomes of $470 and $483 respectively), had the oldest populations (proportion aged 65 years and over, 13% and 14% respectively); the lowest employment to population ratios (around 54%); the highest unemployment rates (10%); and the highest proportion of income units deriving most of their income from government pensions and allowances (35% and 36% respectively).
In general, those areas with higher average earnings (among individuals in paid employment) also had higher average income unit incomes. For example, in 1997-98, the Australian Capital Territory had the highest mean weekly earnings (20% higher than the national average) and the highest mean weekly disposable incomes (also 20% higher than the national average).
Conversely, those areas with lower average employee earnings, generally had lower income unit incomes. For example, Tasmania and South Australia which ranked sixth and fifth respectively among the States in average weekly earnings also had the lowest mean weekly disposable incomes.
In some parts of Australia, however, there was not such a close correspondence between income and earnings. For example, Western Australia ranked only fourth among the States in average earnings (4% below the national average) but first in mean weekly disposable incomes (4% above the national average). The effect of moderate earnings on income levels was offset by relatively high employment levels and low levels of dependence on government pensions and allowances (associated with low unemployment and a relatively young population). Among the States, in 1997-98, Western Australia had the highest employment to population ratio (62%); the lowest unemployment rate (7%); the lowest proportion of population aged 65 years and over (11%); and the lowest proportion of income units dependent on government pensions and allowances (27%).
Factors contributing to differences in earnings
Differences in average earnings of employees between areas are largely attributable to differences in the composition of the work force (e.g skill levels, qualifications, industry mix). For example, employees in the Australian Capital Territory, who received the highest average earnings in Australia in 1997-98, also had the highest proportion with a bachelor degree or higher educational qualification, and the highest proportion employed in the higher skilled (and higher paid) occupational groups i.e. managers, administrators and professionals. Relatively high average earnings in New South Wales and Victoria were also associated with work forces with higher than average levels of educational attainment and above average representation in the higher skilled occupation groups.
Western Australia's high ‘balance of State’ incomes in 1997-98 can be largely attributed to the relatively high levels of employment in the mining industry, and the associated high average employee earnings. In May 1998, 4% of employees in Western Australia worked in the mining industry compared to 1% for the whole of Australia.1 At the same time, mean weekly earnings in the mining industry ($1,273) were more than double the average for all industries ($610).2
Relatively low average earnings in South Australia and Tasmania in 1997-98 were associated with workforces with lower than average levels of educational attainment; lower than average representation in the higher skilled occupation groups; and higher than average representation in the lower skilled occupation groups.
Income and living standards
When considering the implications of income unit income differences for living standards between areas it is important to look at factors which affect the amount of income needed to achieve an equivalent standard of living, and how these differ between areas. One key factor is ‘the cost of living’ which can vary significantly between areas, primarily reflecting differences in the prices of goods and services between areas but also reflecting differences in expenditure patterns. For example, households living in colder parts of Australia need to spend more on home heating than households in warmer areas.
As yet, there are no reliable measures available of overall cost of living differences between States or smaller areas of Australia. However, the amount spent on housing (e.g. rent, mortgage, rates) is a major component of the total living costs of most income units. Housing costs vary considerably between areas (see Australian Social Trends 2000, Housing costs) and can have a significant impact on an income unit’s potential ‘after housing’ living standards.
Subtracting housing costs from disposable income has the effect of increasing the relative income level of income units in those areas that spent the lowest proportions of their income on housing (Perth, Hobart and most balance of State areas) and reducing the relative income level in those areas with the highest proportions of income spent on housing (Canberra and Sydney). Since income units in higher income areas, tended to spend a higher proportion of their disposable income on housing than those in lower income areas, the overall effect of this adjustment is to slightly reduce the gap between the higher and lower income areas.
Differences in income unit composition between areas should also be considered when comparing income levels between areas. This is because the amount of income that different types of income unit need to attain an equivalent standard of living varies according to the number of members, and the characteristics of each member, in the unit. For example, a person living alone would generally need less income than a couple, who would need less than a couple with children. Also, costs associated with children generally increase as children get older while, among adults, those in paid employment incur additional costs associated with working outside the home.
When disposable income after housing is further adjusted to take account of differences in income unit composition (Henderson equivalent income using true housing costs) it has the effect of further reducing the gap between higher and lower income areas. In general, there is an improvement in the relative income of those areas with older populations, lower labour force participation and higher proportions of one or two person income units (Hobart, Adelaide and most balance of State areas). The relative income of Sydney also improves, offsetting the drop due to housing costs. On the other hand, relative incomes decline for areas with younger populations, high employment levels and higher proportions of income units with dependent children (e.g. Darwin, Canberra and Brisbane).
Among Australia's capital cities in 1997-98, Sydney and Canberra had the highest average equivalent incomes (10% above the national average), followed by Darwin (8% above the national average). Hobart and Adelaide had the lowest average equivalent incomes (8% and 6%, respectively, below the national average). In 1997-98, average equivalent ‘balance of State’ incomes were highest in Western Australia (8% above the national average) and lowest in South Australia (24% below the national average).
1 Australian Bureau of Statistics, unpublished data, Labour Force Survey, May 1998.
2 Australian Bureau of Statistics 1999, Employee Earnings and Hours, Australia, May 1998, cat. no. 6306.0, ABS, Canberra.