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6523.0 - Household Income and Income Distribution, Australia, 2011-12  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 31/07/2013   
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FEATURE ARTICLE LOW ECONOMIC RESOURCE HOUSEHOLDS


INTRODUCTION

People's material standard of living is reflected in their consumption of goods and services, such as food, clothing, housing, transport, medical care, leisure activities and so on. Access to economic resources, household income and wealth, is key to understanding people's consumption possibilities. People living in households with low income and/or low wealth are more likely to experience reduced consumption possibilities, resulting in a lower material standard of living and greater risk of experiencing economic hardship.

This article examines the characteristics and economic circumstances of people living in households with low economic resources - low income, low wealth, and both low income and low wealth - using data from the 2011-12 Survey of Income and Housing (SIH).


ECONOMIC WELLBEING

Studies of personal and household economic wellbeing are often concerned with the extent of economic inequality in a society and how it is changing over time. In Australia, the government tax and transfer system acts to redistribute economic resources across the community. In addition, the social security system assists those in need to participate more fully in society, both economically and socially. For these reasons, the characteristics and economic circumstances of those in greatest need receive significant policy and research attention.

The key concepts relating to economic wellbeing are those dealing with income, consumption and wealth. They are generally concerned with describing the total economic value of the resources received, owned or consumed by people. Income can be used to purchase goods and services, or saved and invested to increase wealth. Since both income and wealth can be used to support consumption, economic wellbeing depends on the presence of both types of resources. It can therefore be misleading to assess people's relative economic wellbeing by using any one of the three concepts in isolation. For example, some people with low current incomes have considerable wealth, allowing them to maintain their consumption of goods and services at levels which would not be possible from their incomes alone.

In this article, household income and wealth measures have been equivalised using the same scale, in order to adjust for household size and composition and to maximise the comparability of the measures for the type of analysis undertaken.


HOUSEHOLD INCOME AND WEALTH

Income and wealth are closely interlinked. The more income a household has left after living expenses are met, the greater its capacity for building wealth, and the more wealth a household has, the greater its capacity to generate income. Notwithstanding these relationships, wealth is distributed between households differently to income.

Income levels vary considerably over a person's life cycle and are associated with two main factors. Firstly, labour force participation and the earning capacity of individuals increases with age, peaking at middle age, and declining in older age. Secondly, the growth in incomes until middle age are lower for females than for males, reflecting that women are more likely to work part-time or take breaks from employment due to family responsibilities (Graph 1).

1. Mean gross weekly personal income - 2011-12
Graph: 1. Mean gross weekly personal income—2011–12


The distribution of wealth over the life cycle reflects the common pattern of wealth being gradually accumulated throughout the working lives of household members and then being utilised during retirement. The age grouping with the highest mean net worth ($1.1 million in 2011-12) was households where the reference person was between 55 and 59 years. Many of these people are nearing the end of their time in the labour force or have recently retired, that is, they are at the end of the main wealth accumulation period (Graph 2).

2. Mean household net worth - 2011-12
Graph: 2. Mean household net worth—2011–12


Household wealth is more unequally distributed than household income. People in the three lowest equivalised income deciles share 13% of all income, whilst people in the three lowest equivalised wealth deciles share only 3% of all wealth (Graph 3). People in the lowest equivalised household net worth decile had average equivalised wealth of $8,000 compared to the population average of $413,000 in 2011-12. Persons with low reserves of wealth to fall back on may face financial difficulty in times of need, such as during any period of reduced income or substantial unexpected expenses.

3. Share of equivalised household income and net worth (a) - 2011-12
Graph: 3. Share of equivalised household income and net worth (a)—2011–12


However, examining the net worth of households across the income distribution reveals some interesting results. Graph 4 compares the equivalised net worth of households by their equivalised disposable household income decile. It shows that the equivalised household net worth of persons in the first income decile was higher on average than the average equivalised household net worth of persons in the second and third deciles.

4. Mean equivalised household net worth, By equivalised income decile - 2011-12
Graph: 4. Mean equivalised household net worth, By equivalised income decile—2011–12


Further, while just over a quarter of persons in the lowest income decile were also in the lowest net worth decile, substantial proportions were in much higher wealth deciles, including over 40% in the top five deciles (Graph 5). People with low income but high levels of net worth are unlikely to be at risk of experiencing economic hardship, despite their low current incomes.

5. Persons in lowest equivalised household disposable income decile, By equivalised net worth decile-2011-12
Graph: 5. Persons in lowest equivalised household disposable income decile, By equivalised net worth decile—2011–12



BROADER MEASURES

The income measures used so far in this article can be broadened further by:
  • including the net imputed rent of owner occupiers and subsidised private renters, and
  • bringing income and wealth characteristics together to obtain measures of people's consumption possibilities.


Imputed rent

Imputed rent is an estimate of the value of housing services that households receive from home ownership or by households paying subsidised private rent or occupying their home rent free. Imputed rent estimates have been available separately for each SIH cycle from 2003-04.

The inclusion of imputed rent in income allows the economic circumstances of home owners and renters to be more readily compared. Including imputed rent in the income measure (equivalised disposable household income, including imputed rent) generally results in home owners and subsidised renters moving up the income distribution relative to persons in other tenure and landlord types.

Graph 6 shows the effect of adding imputed rent to income on the relationship between income and net worth. Before imputed rent is added to income, persons in the lowest decile of equivalised disposable household income have an average equivalised household net worth higher than the next two deciles of income. However, when imputed rent is added to income, and the income deciles are recalculated based on the new measure, the equivalised household net worth of persons is lowest for people in the lowest two income deciles.

6. Mean Equivalised household net worth, By income decile - 2011-12
Graph: 6. Mean Equivalised household net worth, By income decile—2011–12


Table 7 illustrates the impact of including imputed rent on the characteristics of persons in the lowest income decile. In 2011-12, 71% of persons in the lowest decile of equivalised disposable household income were also in the lowest decile of equivalised disposable household income including imputed rent. Despite the overlap between the two groups, the reordering of people in the distribution with the inclusion of imputed rent results in a relatively lower average age (down from 57 to 50 years) and a significantly lower mean equivalised net worth ($192,000 compared with $300,000) for people in the lowest income decile.

Couple only households and lone person households where the reference person is 65 years and over decreased from 22% of the population in the lowest decile when using equivalised disposable household income as the income measure, to 10% when imputed rent is included.

7. LOWEST INCOME DECILE, Before and after including imputed rent (a) - 2011-12

Selected characteristics
Equivalised disposable household income
Equivalised disposable household income incl. imputed rent

Mean weekly household income
Equivalised disposable household income $
268
296
Equivalised disposable household income incl. imputed rent(a) $
347
303
Mean equivalised household net worth $'000
300
192
Mean age of reference person years
56.8
49.7
Owner without a mortgage %
33.0
12.1
One parent family with dependent children %
11.2
16.0
Couple only with dependent children %
32.6
41.9
Lone person or couple, reference person aged 65 and over %
22.3
10.0
Persons '000
2 221
2 221

(a) Imputed rent excludes government subsidised housing which is treated as a social transfer in kind



Joint distributions

There are a number of ways to bring income and wealth data together to obtain measures of people's consumption possibilities. In this article, a low economic resource measure is used which includes people who are simultaneously in the lowest four deciles of both equivalised disposable household income (including private imputed rent) and equivalised household net worth. It therefore excludes from the population of interest people with either relatively high incomes or relatively high wealth, and as a result is more likely to correctly classify people most likely to be at risk of experiencing economic hardship compared to measures using income or wealth alone.

Low economic resource is a relative measure that classifies around 20% of the population to be in low income, low wealth households. The measure can be broadly contrasted with the 20% of the population in the low income and low wealth quintiles. However, the proportion of the population included in the low economic resource measure depends on the joint distribution of income and wealth, and may vary over time.


LOW ECONOMIC RESOURCE HOUSEHOLDS

Household characteristics

In 2011-12, there were 5 million people in low economic resource households, that is 22% of all persons (compared with the 4.4 million people, or 20% of all persons, included in each of the low income or the low wealth groups) (Table 8).

Low economic resource households have, on average, more household members and more members aged under 18 than either the low income or low wealth groups, or the population as a whole. One parent families with dependent children are significantly over-represented in all of the low resource groups, compared with the population as a whole.

People living in low economic resource households have, on average, considerably lower incomes and wealth than the population as a whole (this group receives 52% of the national average income and have 13% of the wealth). They are also more than twice as likely to have government pensions and allowances as their main source of household income (44% of persons in the group, compared to 19% for all persons).

The majority of low economic resource household are renters (68%) or owners with a mortgage (27%). Only 4% of low economic resource households own their own home without a mortgage since such households have net worth that puts them above the levels that would place them in the low wealth or low economic resource groups.

8. Persons in LOW ECONOMIC RESOURCE households, Selected characteristics - 2011-12

Low income(a)
Low wealth(b)
Low economic resource(c)
All persons

PROPORTION OF PERSONS IN HOUSEHOLDS WITH CHARACTERISTICS

Main source of household income
Wage and salary %
29.8
55.6
47.7
68.6
Own unincorporated business income %
5.7
2.5
3.9
4.8
Government pensions and allowances %
56.5
38.4
44.4
19.3
Other income %
6.1
3.3
3.4
6.9
All persons(d) %
100.0
100.0
100.0
100.0
Tenure and landlord type
Owner without a mortgage %
18.6
*0.5
3.5
25.5
Owner with a mortgage %
30.5
5.6
26.5
43.3
Renters
State/territory housing authority %
12.4
13.9
12.6
3.2
Private landlord %
34.7
73.8
52.1
25.2
Total renters(e) %
49.4
91.1
67.7
29.4
All persons(f) %
100.0
100.0
100.0
100.0
Family composition of household
One family households
Couple family with dependent children %
42.2
33.4
45.8
42.1
One parent family with dependent children %
14.9
19.3
17.9
6.9
Couple only %
17.0
11.8
8.6
20.1
Other one family households %
7.3
12.0
8.5
14.6
Multiple family households %
3.2
3.1
4.6
3.5
Non-family households
Lone person %
13.6
11.0
10.3
9.5
Group households %
1.8
9.4
4.3
3.3
All persons %
100.0
100.0
100.0
100.0

HOUSEHOLD CHARACTERISTICS

Mean weekly household income
Equivalised disposable household income $
374
644
496
918
Equivalised disposable household income incl. imputed rent(g) $
398
655
501
970
Mean equivalised net worth $'000
193
22
54
413
Average age of reference person years
52
41
45
50
Average number in household
Employed persons no.
0.6
1.1
0.8
1.3
Pension and allowance recipients no.
1.2
0.9
1.1
0.7
Persons
Under 18 years no.
0.8
0.7
1.0
0.6
18 to 64 years no.
1.3
1.7
1.6
1.6
65 years and over no.
0.4
0.2
0.2
0.3
Total no.
2.5
2.6
2.8
2.6
Estimated number in population
Households '000
1 802
1 738
1 802
8 630
Persons '000
4 438
4 439
4 968
22 189

* estimate has a relative standard error of 25% to 50% and should be used with caution
(a) Persons in the lowest quintile of equivalised disposable household income (incl imputed rent)
(b) Persons in the lowest quintile of equivalised household net worth
(c) Persons in the lowest two quintiles of both equivalised disposable household income (incl imputed rent) and equivalised household net worth
(d) Includes households with nil or negative total income
(e) Includes other landlord types
(f) Includes other tenure types
(g) Imputed rent excludes government subsidised housing which is treated as a social transfer in kind



CHANGES OVER TIME

Table 9 compares the characteristics and circumstances of low economic resource households in respect of 2003-04, 2005-06, 2009-10 and 2011-12 (comprehensive wealth data was not collected in 2007-08).

Mean equivalised disposable household income including imputed rent, for persons in low economic resource households increased from $399 per week in 2003-04 to $501 in 2011-12, a $102 or 26% increase in real income. Over the same time period, the average income for all persons increased by 29% ($217), from $753 to $970 per week. The increases for both groups were statistically significant between these two time points.

In real terms, mean equivalised household net worth for persons in low economic resource households has remained about the same between 2003-04 and 2011-12. The gap in wealth between persons in low economic resource households and the average for persons in all households has increased slightly since 2003-04 but remained about the same between 2009-10 and 2011-12. The average equivalised household net worth for all persons was over seven times that of persons in low economic resource households in both 2009-10 and 2011-12, compared with six times in 2003-04.

9. PERSONS IN LOW ECONOMIC RESOURCE HOUSEHOLDS, Income and wealth - 2003-04 to 2011-12(a)

LOW ECONOMIC RESOURCE(b)
ALL PERSONS
2003-04(c)
2005-06(c)
2009-10
2011-12
2003-04(c)
2005-06(c)
2009-10
2011-12

Mean weekly household income
Equivalised disposable income $
389
422
473
496
710
779
891
918
Equivalised disposable income incl. imputed rent(d) $
399
424
476
501
753
905
948
970
Mean equivalised household net worth $'000
56
63
57
54
338
386
434
413
Estimated number in population
Persons '000
4 421
4 585
4 888
4 968
19 607
19 931
21 589
22 189
%
23
23
23
22
100
100
100
100
Households '000
1 613
1 713
1 699
1 802
7 736
7 926
8 399
8 630

(a) Adjusted to 2011-12 dollars using the Consumer Price Index
(b) Persons in the lowest two quintiles of both equivalised disposable household income (including imputed rent) and equivalised household net worth
(c) Estimate for 2003-04 and 2005-06 are not directly comparable with 2009-10 and 2011-12 due to the improvements made to measuring income introduced in the 2007-08 cycle. Estimates for 2003-04 and 2005-06 have been recompiled to reflect the new treatment of income, where data are available to support this calculation
(d) Imputed rent excludes government subsidised housing which is treated as a social transfer in kind



CONCLUSION

People living in low economic resource households are of particular policy and research interest because of their greater potential risk of experiencing economic hardship. This article has shown that a low economic resource measure, combining both low income and low wealth, provides a more accurate representation of the population potentially at risk, than can be achieved by simply using low income or low wealth alone. However, there are many other factors that need to be considered in determining whether individual people are actually experiencing economic hardship. For example a person's income and wealth strongly relates to their life cycle stage and may not reflect future incomes or potential for wealth accumulation.

The income, but not wealth, of low economic resource households have increased since 2003-04, the first year available for comparison. However, the mean income and wealth measures for all persons between 2003-04 and 2011-12 grew more than for people in low economic resource households, resulting in a widening gap between the low economic resource group and the population average.

The SIH confidentialised unit record files (CURFs) provide considerable scope for more expansive analysis of low economic resource households, including additional cross-classification of households and use of more complex statistical procedures. Data about income and wealth were collected in the 2003-04, 2005-06, 2009-10 and 2011-12 SIH, allowing for analysis of the joint distribution of these measures, as well as the classification of households into the low economic resource group.

The importance of the joint measurement and analysis of income, consumption and wealth for understanding the economic wellbeing of people and households has been highlighted internationally with the recent release in June 2013 of the OECD Framework for Statistics on the Distribution of Household Income, Consumption and Wealth. This publication, which was prepared by an international expert group working under the auspices of the OECD, and led by the ABS, presents an internationally agreed framework to support the joint measurement and analysis of micro-level statistics on household income, consumption and wealth.


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