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Growing income inequality

Australian workers have enjoyed some of the highest increases in real wages compared to other Western nations since the 1990s, but wage growth has stagnated over the last five years.

One reason for flagging wages is that since the Australian economy did not slow significantly during the 2008 global recession, it has shown less rebound, said Professor Peter Whiteford of ANU College of Asia and the Pacific. But another factor could be the country’s high rate of part-time workers, which includes the underemployed – those working part time but say they want more hours, he said.

“There are more people in Australia who are underemployed than unemployed,” Whiteford said.

“One of the really striking things is if everyone was a full-time worker in Australia, we’d have one of the lowest levels of inequality in the OECD. But lots of people aren’t full-time workers.”

Whiteford has published extensively on Australian and international governmental policy surrounding supports for low-income families. He has spoken to the Department of the Prime Minister and Cabinet, Parliamentary Library and other government offices on welfare and income inequality, and contributed to policy debates by contributing articles to The Conversation and Inside Story.

Whiteford also is the social policy researcher in Australia who worked on the GINI Project – a collaboration of university scholars around the globe who have analysed the drivers behind the growing income and wealth inequality in industrialised nations. The project seeks to provide a global uniform measurement for valid comparisons and spur policy-oriented debate on inequality.

Australia had a GINI index – a measurement of inequality where 0 is perfect equality and 1 represents a single person receiving everything – of 0.34 in 2014, which is slightly more unequal than the OECD average of about 0.31. But the commonwealth is more equal than New Zealand at 0.35, the UK at 0.36 and the US at 0.39.

Australia’s economic and political situation is unusual compared to other OECD countries, Whiteford said, starting with its relatively high minimum wage. The Australian government took several steps in the 1980s that helped reduce income inequality, including:

  • re-introducing Medicare and introducing the superannuation guarantee
  • increasing pension and Newstart rates
  • lowering the marginal rate on income taxes but adding taxes on capital gains and fringe benefits
  • substantially increasing family payments to lower-income workers.

“We dramatically expanded spending on family payments, particularly to the low-paid workers” in the late 1980s, Whiteford said. “Australia had the largest increase in payments to children in the OECD. It was a big instrument of redistribution.”

Income inequality grew in the 2000s as Australia’s economy grew robustly, mainly from the mining boom, and tax cuts that were adopted benefited higher-income households disproportionately, he said. Additionally, Australia and most industrialised nations experienced a rise of inequality during this period due to increased globalisation and a growing inequality of wages.

A larger factor than wage disparity in Australian income inequality remains unemployment and part-time work, Whiteford said. Unemployment in Australia has fallen from its highs in the early 1990s and has remained relatively constant since 2009.

 However, underemployment rose in the 1990s and continues to grow. Younger workers make up a large component of this group, who say they want more hours.

A separate group not considered underemployed are part-time workers who choose not to work full time because they are students, parents, caretakers or just making a lifestyle choice.

“We have one of the highest levels of part-time employees in the OECD,” Whiteford said. “The usual argument for part-time work is that it gives both employers and workers flexibility.”

How part-time work affects wages is unclear. Traditional economics predicts that wages rise with low levels of unemployment, he said, yet as unemployment rates have dropped substantially in the US, UK and other industrialised nations since the 2008 recession, wage growth hasn’t occurred.

A big question among global public policymakers is whether higher levels of underemployed and part-time workers prevent wages from rising. That question has been raised in Australia as well, Whiteford said.

Taking the longer view, a large majority of the income gains made since Australia’s last recession in 1991 were made during the mining boom of the mid-2000s. Wages have stagnated since 2008, he said, and future inequality trends are likely to continue without stronger employment growth.

Research funded by: European Commission under the Growing Inequalities’ Impacts (GINI) project

Related website: GINI Project

Related research: Professor Peter Whiteford

Image credit: Shutterstock

Updated:  24 April, 2017/Responsible Officer:  Dean, ANU College of Asia & the Pacific/Page Contact:  CAP Web Team