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Income Distribution: Income distribution and life cycle
Earning capacity of income units
The rise and fall in income over the life cycle is associated with two main factors. First, the labour force participation and the earning capacity of individuals increase with age, peaking at middle age, and declining rapidly after 60 years. In 1995-96 earned income peaked at 45-54 years for men and 35-44 years for women. Second, the number of earners in an income unit varies over the life cycle. Couple income units, with or without children, predominate in the middle age ranges. Couples have much greater earning potential than one-person income units which are concentrated in the youngest and oldest age groups. In 1995-96, 40% of middle-aged income units had two earners compared with 23% of all income units.
In 1995-96, 62% of all income units derived most of their income from wages and salaries or from self-employment. These units had the highest incomes, averaging $816 and $916 per week respectively. Those dependent on government pensions and allowances as their main source of income (29%) had the lowest, averaging $238 per week.
The early years of adulthood, 15-24 in particular, are typified by low income. This is associated with high levels of participation in education, low levels of participation in full-time work, relatively low rates of pay for both full-time and part-time work, and relatively high rates of dependence on family and government pensions and allowances. (See Australian Social Trends 1997, Youth income).
In 1995-96, one-person income units aged under 35 (25% of all income units) had average incomes of $387 per week, around two thirds of the average for all income units ($609 per week). There were 14% who received less than $120 per week, 69% received less than $500 per week and fewer than 3% received $1,000 or more per week. While the majority received most of their income from earnings, a further 24% had no earners, 4% received most of their income from other private sources, such as scholarships, while 17% received most of their income in the form of government pensions and allowances, mainly student allowances (paid through the Austudy and Abstudy schemes) and unemployment allowances provided by the Department of Social Security.
Young couples without children
On average, the partners in young couple income units (reference person aged under 35) are older than one-person income units under 35, many of whom are still in full-time education. The partners are more likely to be employed, to have been working for longer and to be earning more than young singles. In most cases both partners remain employed until the birth of their first child. In 1995-96, 83% of young couples without children were both working.
This increased earning capacity is reflected in higher incomes. In 1995-96 young couples had average incomes of $1,092 per week, almost three times the average of young singles. Only 10% of young couples without children received less than $500 per week and very few were dependent on government pensions and allowances for most of their income.
Couples with dependent children
Labour force participation of women with children diverges markedly from that of men. A large proportion of women give up full-time work to care for young children and many of these return to the labour force on a part-time basis when children are older (see Australian Social Trends 1998, Trends in women's employment).
In 1995-96, 44% of couple income units with young children (eldest under 5) had two earners compared to 83% of young couples without children. Incomes were consequently lower, averaging $925 per week. Incomes of couples with dependent children increase with age of children (and parents) as individual earnings peak and more women return to paid work. In 1995-96 the average weekly income of couples with older dependent children (eldest 15-24) was $1,080; 64% of these income units had two earners. Some 11% of all couples with dependent children were dependent on government pensions and allowances (e.g. unemployment, parenting and family allowances) for most of their income.
One-parent income units
For a significant minority, a major life cycle transition is from couple with dependent children to lone parent (usually mother) with dependent children. The employment options for the one potential earner can be severely limited by the demands of caring for children alone so that, on average, income levels of one-parent income units are less than half that of couples with dependent children.
In 1995-96 the average weekly income of one-parent income units was $433. Most (72%) received less than $500 per week while only 5% received $1,000 or more. Over half (59%) of one-parent income units were dependent on government pensions and allowances (mainly the sole parent pension and family allowance) for all or most of their income. While almost half (47%) of lone parents had paid work, only 38% derived most of their income from earnings.
Early-retirement age (55-64 years)
Income levels decline significantly in the 55-64 years age group as many people, either by choice or necessity, switch from full-time to part-time work, or retire from the labour force altogether. In 1995-96 couples without dependent children (and reference person aged 55-64) received an average of $658 per week - 18% received more than $1,000 per week while 49% received less than $500 per week. About two thirds of these income units had one or more earners and 56% derived most of their income from earnings. A further 15% derived most of their income from other private sources such as superannuation, property and other investments. Over one quarter, 27% were dependent on government pensions and allowances (e.g. the disability support pension and unemployment allowance) for most of their income.
Older income units (65 years and over)
For older couples (reference person aged 65 years and over) labour force participation is much lower than those with a reference person aged 55-64. In 1995-96 only 14% of these units had one or more earners and 7% derived most of their income from earnings. The proportion deriving most of their income from superannuation, property and investments was higher (22%) as was the proportion (70%) dependent on government pensions - primarily the age pension. Consequently, income levels were much lower, averaging $429 per week. Only 5% received $1000 or more per week while 79% received less than $500.
Reflecting the difference in life expectancies between men and women throughout this century, the majority (74%) of older one-person income units (aged 65 years and over) are women. Labour force participation declines rapidly after 65 years of age and older women are less likely than their male cohorts to be employed, or to have ever had long-term paid employment. These factors contribute to older one-person income units having the highest rates of dependence on government pensions (80% in 1995-96), the lowest levels of employment (4%) and the lowest average incomes ($226 per week).
GROSS WEEKLY INCOME OF SELECTED LIFE CYCLE GROUPS, 1995-96
Source: Income Distribution, Australia, 1995-96 (cat. no. 6523.0).
NUMBER OF EARNERS AND PRINCIPAL SOURCE OF INCOME OF SELECTED LIFE CYCLE GROUPS, 1995-96
Source: Income Distribution, Australia, 1995-96 (cat. no. 6523.0).