Wealth gap sur­prise: it’s shrunk


The “pop­u­lar per­cep­tion” stoked by La­bor that in­come in­equal­ity is ris­ing is not backed by the ev­i­dence and the “best guess” of econ­o­mists is that the gap be­tween the rich and poor has started shrink­ing.

A dis­cus­sion about the murky world of mea­sur­ing in­equal­ity at the Univer­sity of Mel­bourne / The Aus­tralian So­cial and Eco­nomic Out­look Con­fer­ence yes­ter­day painted a “be­nign pic­ture” of the in­come gap, although other in­di­ca­tors posed po­lit­i­cal chal­lenges for both par­ties.

“Not only is in­come in­equal­ity not ris­ing, our best guess is that it is ac­tu­ally fall­ing,” Mel­bourne In­sti­tute econ­o­mist Roger Wilkins told the panel, re­fer­ring to a chart that shows the re­duc­tion in the Gini co-ef­fi­cient since 2007-08.

“This paints quite a be­nign pic­ture. I think the big­ger story is that there is a grow­ing gen­er­a­tional di­vide in wealth in­equal­ity.”

Us­ing the House­hold In­come and Labour Dy­nam­ics in Aus­tralia data, me­dian house­hold wealth by age group went back­wards by about 2 per cent for peo­ple aged 25 to 34 be­tween 2002 and 2014, but it in­creased by more than 60 per cent for those aged 65 and over.

Even us­ing the more con­ser­va­tive ABS fig­ures, wealth for young peo­ple grew by about 7 per cent com­pared with about 42 per cent for those aged 55 and over.

Pro­fes­sor Wilkins noted that even if the rate of in­come in­equal­ity had fallen or flat­lined in the past decade, it was still sig­nif­i­cantly higher than it was in the early 1990s. He at­trib­uted a spike be­tween 2004 and the global fi­nan­cial cri­sis to “sub­stan­tial” method­ol­ogy changes by the Aus­tralian Bureau of Statis­tics.

“That’s a 14 per cent in­crease over the four years; that would prob­a­bly be some sort of record in­ter­na­tion­ally if that were real,” Pro­fes­sor Wilkins said. “The in­de­pen­dent data source we have doesn’t show that same in­crease. Hav­ing said that, our best guess is that these rates are above where they were in the 1990s.”

The pro­por­tion of peo­ple with in­comes of half the me­dian had fallen from be­tween 11 and 13 per cent in the same pe­riod to be­low 10 per cent to­day, an “un­am­bigu­ously good story,” he said.

Pro­duc­tiv­ity Com­mis­sion com­mis­sioner Jonathan Cop­pel pre­sented a sum­mary of the re­cent PC stock­take of in­equal­ity ev­i­dence which he said would “hope­fully … dis­pel the pop­u­lar per­cep­tion that the ben­e­fits of growth are not be­ing shared”.

The good news, he said, was that life course mo­bil­ity was high in Aus­tralia. The “in-be­tween” news was that in­ter­gen­er­a­tional mo­bil­ity — how far a per­son builds on the life of their par­ents — was nei­ther par­tic­u­larly high nor low com­pared with other coun­tries.

The bad news, how­ever, was that mo­bil­ity for those at the bot­tom rung was par­tic­u­larly “sticky”. Of those in the bot­tom 10 per cent of in­comes in 2001-02, more than a fifth was still on the low­est rung 16 years later and 28 per cent had man­aged to climb just one decile. Those at the top were marginally more likely to stay there over the same pe­riod.

Both Pro­fes­sor Wilkins and Mr Cop­pel ar­gued that the fo­cus should turn to en­trenched dis­ad­van­tage in Aus­tralia, with 700,000 peo­ple in in­come poverty for at least the past four years.

“There is a risk for those peo­ple of eco­nomic dis­ad­van­tage be­com­ing en­trenched,” Mr Cop­pel said.

“These risks are par­tic­u­larly el­e­vated for chil­dren liv­ing in job­less house­holds, which is a group that have stood out among the mul­ti­ple mea­sures of in­equal­ity and dis­ad­van­tage.”

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