1370.0 - Measuring Australia's Progress, 2002
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 19/06/2002
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Equivalised average weekly disposable income of households(a)(b)
The commentary National income describes progress in overall levels of income generated in Australia. But it is also important to consider whether that progress is being realised by all members of the community, especially the most economically disadvantaged groups, and whether the gap between the least and most disadvantaged groups has been growing or not. An ideal indicator might show whether the proportion of people in poverty (those with limited means whose consumption of goods and services is well below community norms) was rising or falling, or whether or not the situation of people in poverty was improving, either in absolute terms or relative to the situation of others in the community. However, such measures are notoriously difficult to construct (see box). Income based measures, which compare the circumstances of people within and between different parts of the income range (commonly in 10% or 20% groupings), remain the most widely used indicators of economic disadvantage.
The headline indicator presented here focuses on changes in the average disposable (after tax) income of households close to the bottom of the income distribution (namely, the 20% of households in the second and third lowest income deciles). The lowest 10% have been excluded from the measure because of concerns with the fact that the extremely low incomes (close to nil and sometimes negative) recorded for some households in this group do not accurately reflect their living standards. (SEE FOOTNOTE 2)
Equivalised income has been used to group households into low, middle and high income groups. (SEE FOOTNOTE 1) Equivalised income is the income of households adjusted for the different income needs of households of different size and composition. A consequence of using equivalised income measures is that the dollar amounts do not accord with the amounts that households actually receive, but are those amounts they would have received if they all comprised two adults and two children aged less than 15 years.
Based on comparable annual data available for the period 1994-95 to 1997-98 (more recent data are being reviewed), (SEE FOOTNOTE 3) the indicator shows that the real income of the low income households (the more disadvantaged households) was rising through this period. It increased by 5%, from $408 to $427 per week (expressed in 1997-98 dollars).
As might be expected, the average incomes of higher income groups also increased. For instance, the cost of living adjusted, equivalised disposable income of households in the middle 20% of households also increased by 5%, from $687 to $720 per week in the three years to 1997-98. The average income of the 20% of households at the top of the income distribution increased by 6% from $1,556 to $1,642 per week.
The close to uniform changes in the equivalised disposable income of households with low, middle and high incomes suggest that there has been little change in the income gap between households. When looking at other commonly used measures of changes in income inequality (as presented in the commentary Economic disadvantage and inequality: Looking more closely), the same pattern of little or no change in income distribution emerges.
Another approach to assessing changes in the extent of economic disadvantage is to focus on the circumstances of some groups in most need of support. The indicator, presented in the accompanying graph, looks at the proportion of children that may be living in (or may be at risk of living in) economically disadvantaged households because they do not have a parent in paid employment.
Through the 1990s, on average about 18% of children aged less than 15 were, at any one point in time, in families in which their parents (or parent in lone parent families) did not have a job. Many of these children were in households where the parent(s) were not in the labour force. For those children whose parents remained unemployed or continued not to be in the labour force for a significant period of time, many would be in households primarily dependent on welfare benefits as their main source of income.
Other specific groups in the community widely recognised as being relatively disadvantaged include Indigenous Australians, people with disabilities, the carers of people who need help and/or supervision in meeting their daily needs, one parent families, and retirees with limited means of their own. Many of these people depend on income support provided by the social security system as their main source of income.
FACTORS INFLUENCING CHANGE
The overall vitality of the economy is a key determinant in providing jobs and therefore of the economic wellbeing of households. However, some people are unable to work, some earn more than others, consumption and investment behaviours differ, and life circumstances vary, so inequalities in income and wealth are inevitable.
Mechanisms exist to support people who fare less well. Important among them are government benefits and taxes which directly redistribute resources from the better off to the worse off. In addition to the direct income support payments (the pensions and benefits provided to people with limited means of their own), government provides a wide range of education, health, housing and other indirect goods and services. Other support, provided by the work of charitable organisations (often with the help of government) and the charitable donations made by businesses and households, help to ensure that most people in Australia have adequate food, clothing and shelter. It is the relative ability of households to provide for themselves and the relative generosity of support mechanisms that help determine the economic wellbeing of the most disadvantaged groups.
Children(a) without an employed parent(b)
LINKS TO OTHER DIMENSIONS OF PROGRESS
The income generated by the economy as a whole is an important determinant of living standards. Economic disadvantage is often associated with problems such as a lack of participation in work, drug taking, poor health, poor education, poor housing, crime, social exclusion and a lack of opportunity for children. Changes in the economic wellbeing of people with low incomes will to some extent impact on, and be impacted by, the other dimensions of progress described in this publication.
See also the commentaries National income, Education and training, Work, Health, and Social attachment.
1 The equivalence scale used to obtain equivalised incomes is that used in studies by the Organisation for Economic Co-operation and Development (OECD) that is referred to as the 'modified OECD scale'. This is among the most widely favoured by experts in the field. The scale gives a weight of 1.0 to the first adult in the household, and for each additional adult (persons aged 15 years and over) a weight of 0.5, and for each child a weight of 0.3. By weighting individuals within households the resultant income measures take account of the different needs of households of different size and composition. The scale recognises that there are economic advantages associated with living with others. These advantages (technically known as 'economies of size') occur because household resources, especially housing, can be shared. Where sharing takes place the expenditures per person do not need to be as high as when goods and services are not shared with others, as is the case when living alone.
2 Households in the lowest income decile mostly recorded incomes (in ABS income surveys) below that which can be provided through income support payments available from the social security system. Households may have income below levels provided by the social security safety net for various reasons. These include a recent, and possibly temporary, change in household circumstances so that households may not have applied for any income support payment, or because households otherwise failed the eligibility criteria for a pension or benefit. They may, for example, have substantial levels of assets or they may have recorded a net loss in the taxable income generated by their business.
The value of goods and services consumed by such households (sometimes supported by borrowings or the sale of assets) is often as high or higher than that of households in slightly higher income groups. If households with very low recorded incomes had been included this would have substantially lowered the average income values in a way that gave a misleading impression of the economic wellbeing of the most disadvantaged households.
3 For information about the reasons for the review of data available from the 1999-2000 and 2000-01 Surveys of Income and Housing Costs, refer to the article on data quality issues in these surveys published in Australian Bureau of Statistics 2002, Australian Economic Indicators, April 2002, Cat. no. 1350.0, ABS, Canberra.