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.”