Distribution of income

Question 1

Theory

Answer 1

• Intro - restate the question
• Australia’s 2014 GINI coefficient was 35.8 and is the 63rd most equal country
• more unequal than the OECD average
• Income inequality is caused by both cyclical, structural and institutional factors
• The Lorenz Curve is a graph that compares the total income received against the varying percentage of
  recipients.
  (INSERT GRAPH HERE)
• The Gini coefficient is a mathematical calculation that uses the Lorenz curve to summarise the distribution of income across the population. A 0 is most equal, 1 is least equal

Question 2

Endowed - aquired

Answer 2

There are significant differences in resources both endowed and acquired. Endowed refers
to the capacity to work, for instance older Australians earn significantly lower average
salaries, with employees aged 65 years and over earning an average of $994 per week.
Acquired refers to the formative factors that lead to higher income, for example those with
university degrees earn over $130,000 per year on average at the peak age bracket,
whereas those with vocational training around $70,000. Thus, those with a higher quality
and quantity of resources can parlay these into higher levels of income and wealth.

Question 3

self reinforced

Answer 3

The self-reinforcing cycle of income and wealth refers to those with a background of wealth
being able to create further wealth. For example, assets create returns in the form of rent,
dividends and interest from capital. Wealth can be transmitted from one generation to
another through the means of education, evident as a child is more than twice as likely to
receive a university degree if their father holds a degree, compared to children of a father
who did not complete high school. Though Australia is one of the countries in which this is
least true, according to an OECD report Australia had the lowest intergenerational equity

earnings elasticity of the OECF of below 0.2 (less than 20% of parents’ economic advantage
was transferred to their children).

Alternatively, the cycle of poverty refers to the interconnected cycle between the secondary
labour market of unskilled, casual, non-permanent workers, low levels of income, education
and low skill levels. Moreover, the poor are less likely to have a strong bargaining position
from which to advocate for wage increases, for example unionised workers are generally
paid 10-20% more than non-unionised workers, when they already tend to come from
middle-income jobs. This may lead to people being trapped within relative or absolute
poverty.

Question 4

economic cycle

Answer 4

Cyclical changes in the levels of economic growth may either create a general rise in wages
(thus benefiting the poor through employment and improved bargaining position), or beget
increased poverty and inequality (for example during the GFC the Gini coefficient rose to
above 0.34 for the first time this century). Macroeconomic and microeconomic policies can
effect growth levels and thus produce a trickle-down effect, thus indirectly affecting the
poor through fiscal tools such as stimulus packages.

Question 5

structural changes

Answer 5

Structural changes in the Australian economy through technological advances, globalisation
and microeconomic refers may cause workers with non-transferable skills to become
redundant. This can increase inequality as poorer workers have a lesser capacity to retrain
and find new work.