Distribution of income and wealth Flashcards
The objective of distribution of income and wealth is compatible with the objective of economic growth.
This is because, high income earners have low mpc and high mps but low-income earners have high mpc and low mps. By taxing the high-income earners and transferring the income to low-income households through social welfare, it will shift the proportion of the income from higher saving to higher consumption which increases economic growth and improves distribution of income concurrently
There is a direct relationship between income and wealth
High levels of income allow a person to increase their level of wealth, eg savings, buying property. Income is also earned from wealth, eg interest on deposits, dividends from shares, rent from property.
Gini Coefficient
● 0 is perfect equality
● 1 is extreme inequality (i.e. one household own all income/wealth)
● The greater the gini coefficient, the higher the inequality
inequality ABS statistic
According to the ABS in 2017 - 2018:
• the richest 20% of income units received 40.4% per cent of total income (was 39.8% in 2015/16).
• The poorest 20% of income units received 7.5% of total income (7.7% in 2015/16).
income inequality stat
The average annual pre-tax income for households in the highest quintile is $280,956, more than eleven times the average for the lowest quintile of $24,336.
Australias ranking
Australia’s inequality around average of OECD – ranked 8th in wealth distribution although wealth distribution has become more unequal (housing a major factor).
Order of sources of income
- Wages and salary
- Profits
- Rent, interest and dividends
- social benefits
- other
Absolute vs relative poverty
Absolute Poverty: A state in which a family’s income is too LOW to be able to buy the quantities of food, shelter and clothing that are deemed necessary.
Relative Poverty: Living below a certain percentage of average income.
Factor
Age and education
Income varies over the source of a person’s life, although it tends to remain highest between the ages of 35 and 54 – the main years of a person’s working life. Incomes are lower in the earlier years of working life since people have less education, experience and hold lower paying jobs. The distribution of wealth follows a similar pattern according to a person’s age- rising for most of their lifetime and falling away as people get older and move into retirement. Those with higher qualifications such as tertiary degrees and diplomas enjoy incomes much higher than those with vocational training of no qualifications beyond high school.
Factor
Gender and occupation
Despite gender pay equality, a gender wage gap still exists in Australia. The gender pay gap is influenced y a variety of factors including those occupations with a higher proportion of female employees are still generally paid lower wages; women still have greater home caring responsibilities than men in many families and there are fewer senior roles for employees who choose to work part-time. In addition to these economic factors, women still experience different forms of direct and indirect discrimination.
The presence of discrimination is confirmed by an observation for the average earnings of males and females working full-time in the same occupation group as women on average earn around $240 per week less than men regardless if they have the same qualifications and experience as men.
Different occupations earn different rates of pay.
- High paying occupations – e.g. law/medicine – require a tertiary qualification to access employment. However, groups that suffer from social disadvantage are unable to access education to obtain employment in these occupations (refer to a poverty trap).
- Some professions depend on increases to Modern Awards (e.g. public sector workers) to see an increase in their income; however, other occupations have greater opportunities for enterprise bargaining, commissions/bonuses etc. which will increase their income levels.
Entrepreneurs and/or self-employed workers can achieve high levels of profit.
Ethnic and Cultural Background
Due to a lack of education, skills and/or the ability to speak English, people from ethnic backgrounds (e.g. migrants) struggle to obtain full-time or high paying jobs. In 2020, 30 per cent of Australians were born overseas. Around 55 per cent of migrants come from countries that are not mainly English-speaking nations.
Family Structure
Family structure is another important factor influencing trends in income inequality, particularly because of recent demographic changes in Australia, such as the growth of female participation in the workforce, decreasing family sizes as couples raise fewer children on average, and the increasing proportion of people living alone. There is a large disparity in family income and wealth levels, one-person households and single parent households received weekly income levels is significantly below the median of $899 a week. forty per cent of single parent households are in the bottom income quintile. This is likely to reflect the lower rates of full-time employment, Dirven by caring responsibilities. Couples without dependent children were the highest income family structure and received $1151 per person per week.
Geography
In recent years, inequality between different regions has become an issue of significant economic and social debate in Australia. Regional factors are not only influencing demographic change- as people in disadvantaged areas take flight to more prosperous areas- but they also have been a major issue driving the direction of government polices relating to income inequality. At one level, inequality exists between different states in Australia, but perhaps more significant is the inequality between people in major cities and regional areas, and between better-off and less-well-off suburbs In major cities.
Income distribution between Australian states and territories, with the Australian capital territory and northern territory enjoying the highest household incomes of $1256 and $1243 and Tasmania suffering the lowest income of $922 per week. an important limitation of this data is that is does not consider differences in the cost of living, for example, Sydneysiders are paying the highest weekly rents in the country, with the average price of renting a property in Sydney in 2019 at $582 per week.
Inequality also exists within states, NSW, the population living in capital city area earned 32 per cent more than those in rural areas.
Indigenous Australians
Indigenous Australians comprise around 3.5 per cent of the Australian population, around 798,400 people according to the ABS in 2018. Compared to the rest of the population, indigenous Australians are much more likely to live in remote parts of Australia, more likely to have low levels if income and wealth and are a much younger population with an average age of 23 compared to 38 for the general population. This reflects higher fertility rates and higher mortality rates for the aboriginal population than for non-indigenous Australians. According to the census publication characteristics of aboriginal and Torres’s strait islander Australians 2016, median weekly disposable income for indigenous households was $1203 compared to $1438 for the general population.
- Employment rate for indigenous people is 49 per cent in 2019. Over the same period non-indigenous employment rate was broadly stable at around 75 per cent.
- Although life expectancy for aboriginal people has improved 10 per cent since 2006, the life expectancy of non-indigenous Australians has improved at a similar rate. This means the gap between indigenous and non-indigenous life expectancy has not narrowed but remains large.
- The life economy for indigenous males is 71.6 years and 75.6 for females, both of which are around 8 years less than non-indigenous Australians.
- While mortality rates from circulatory diseases have decreased over the last decade, mortality rates from cancer have increased disproportionately, a higher-than-average rate of smoking (with 41 per cent of indigenous smoking daily). Has contributed to an increased cancer mortality rate.
The closing the gap report noted progress in reducing indigenous child mortality by 35 per cent, achieving a 95 per cent enrolment rate for indigenous four-year-old in early childhood education by 2025 is on track, as is having the cap between indigenous and non-indigenous year 12 attainment which has fallen 13 per cent since 2016. Although there is a persistent gap in opportunities between indigenous and non-indigenous Australians, an increasing number of indigenous Australians are progressing to higher educational qualifications.
