Income Distribution

• Income and wealth are different concepts – one represents a flow of funds and the other a stock of assets. They are closely linked, however, because the more income a household has, the greater its capacity for building wealth over time.
• Wealth on the other hand, refers to the current value of the assets a household has accumulated over time through savings; financial investments; business profits and inheritance
• Net wealth is the difference between a household’s assets and its liabilities.

  Household assets are generally held as property, shares, savings and superannuation, while liabilities include mortgages, personal loans and credit card debt.
• Very few Australians live in absolute poverty
• About 20% live in relative poverty (meaning they do not achieve what our society defines as minimum standard of living)
• Data is asymmetric – small proportion have high incomes while a large proportion have lower incomes.

  In 2019-2020 the mean income was $1124 per week per household.

  The median was $959 per week per household.

  
• Lorenz Curve

  •Maps the cumulative proportion of the population, ranked by income, against their cumulative share of income

  •Horizontal axis shows cumulative percentage of population while vertical axis shows cumulative percentage of income

  •The diagonal line represents perfect equality

  
• Lorenz Curve

  •Whenever some degree of income inequality exists, the Lorenz curve will bow outwards – moving south east

  •The further the curve lies from the diagonal, the greater the inequality in the distribution of income

  
• Lorenz Curve

  •The circle shows the lowest 20% (the poorest) of the population earned 7.5% of total income

  •The square shows the 80% of the population cumulatively earned 60% of the total income

  •This means that the top 20% earned 40% of total income

  
• Lorenz Curve

  •The maroon coloured line is the Lorenz curve for wealth

  •It shows greater inequality – the top quintile (10%) hold over 60% of total wealth while the lowest have just 0.7%

  
• Gini coefficient (or Gini index)

  •Measures the degree of income inequality in a country

  •Measures the area between the Lorenz curve and the equality diagonal

  •Result is a number between 0 and 1

  •A society in which income is equality distributed would have a Gini coefficient of 0

  •Absolute inequality would yield a Gini coefficient of 1

  
• Gini coefficient

  •In the last 20 years, Australia’s lowest coefficient was 0.291 (2004,2009) and its highest was 0.33 (2007)

  •Income equality was 0.32 in 2021-22
• Gini coefficient

  •Like all statistics, the Gini coefficient may not always tell an accurate picture

  •Country X – top 50% of population receives all income in equal amounts (total income distributed equally among 50% of population)

  •Gini coefficient would be 0.5

  •Country Y – 25% of all income is earned equally by 75% of population with remaining income earned equally by 25% of population

  •Gini coefficient would be 0.5

  •However, Country Y would be judged to have a more even distribution of income

  
• Inequality in income and wealth explained:

  •Personal traits – physical characteristics, personality and talent, attitude to risk, knowledge and skills

  •Occupational conditions – education, training, work responsibility, hours worked, degree of danger, geographical location

  •Opportunity – socio-economic and family background, access to higher education

  •Other factors – sickness, disability, age, involuntary employment