Recent Trends in Wage Income Inequality in Australia

1
Recent Trends in Wage Income Inequality in
Australia

• Peter Saunders
• Social Policy Research CentreUniversity of New
  South Wales
• p.saunders_at_unsw.edu.au
• Presented to the Australian Social Policy
  Conference, University of New South Wales, 20-22
  July 2005

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Recent Studies of Earnings/Wage Income Inequality

• Using Earnings Data from Labour Force Surveys
• Gregory (1993) Keating (2003)
• Norris and McLean (1999) Saunders (2000)
• Using Household Income Survey Data
• Borland and Wilkins (1996) Borland and Kennedy
  (1998) Borland (1999)
• Richardson and Harding (1998 1999)
• Saunders (1996) Pappas (2001)

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Recent Findings

• Full-time earnings inequality has increased for
  men and women, particularly between 1990 and
  1994-95
• Inequality increase concentrated at the top for
  males, but strong growth at the bottom for
  females
• Increased inequality has taken place within
  education/experience groups, in a small number of
  industries, among Australian-born and immigrants,
  in private but not public sectors, with some age
  differences

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Keating (2003) Study

• Relative pay rates by occupation have been stable
  since the mid-1970s
• Observed change in inequality reflects changes in
  the occupational composition of employment
• Need to address inequality through employment
  policies, not by trying to control wage rate
  changes

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Advantages of Using SIHC

• Can relate individual earnings to family
  circumstances
• Can locate earnings inequality in the overall
  inequality profile
• SIHC data are available in unit record file
  format
• BUT
• Switch from IDS to SIHC in 1995 is a potential
  problem
• Problems with some aspects of the reported SIHC
  data (but not wages of full-time employees)

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Approach Used Here

• Focus on full-time employees aged 15-64 years
  only
• Period covered 1981-82 to 2000-01
• Examine changes in real (CPI-adjusted) total wage
  incomes at different points (percentiles) in the
  distribution
• Explore changes at the very top of the
  distribution
• What does the disaggregated picture look like?
  Have all FTEs experienced real wage income
  increases? Are there systematic differences by
  gender and age
• Examine the distribution of employment growth
  (since 1986)

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Ratio of Wages and Salaries (SIHC/IDS) and
Employee Income (HES) to Cash Wages and Salaries
in the Household Income Account (ASNA)
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Distribution of Wage and Salary Income Among
Full-time Employees by Gender, 1981-2001
(2000-01)
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Changes in Real Wage Incomes of All Full-Time
Employees (percentages)
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Changes in Real Wage Incomes of All Male
Full-Time Employees (percentages)
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Changes in Real Wage Incomes of All Female
Full-Time Employees (percentages)
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Main Findings

• Overall increase in inequality is substantial
• Inequality increased most between 1990 and
  1994-95 steady increase for men since 1996-97
• Increase is mainly at the top for men, but more
  evenly spread for women
• P10 and P20 males have gone backwards, P10
  females have done very well
• Female earnings in 2000-01 lower than equivalent
  male percentiles in 1981

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Changes in Real Wage Incomes of All Full-Time
Employees Under 25 (percentages)
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Changes in Real Wage Incomes of All Full-Time
Employees Aged 25-49 (percentages)
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Changes in Real Wage Incomes of All Full-Time
Employees Aged 50 (percentages)
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Main Findings

• Clear age differences in the change in
  inequality
• Little change in levels or inequality among
  younger employees employment structure effects?
• Older employees have done best in terms of
  levels, but inequality has grown fastest
• P10 P20 employees aged over 25 have gone
  backwards

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Distributional Pattern of Changes in Male FTE,
1986- 2000-01
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Distributional Pattern of Changes in Female FTE,
1986- 2000-01
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In Conclusion

• The SIHC data provide a valuable source of
  information on trends in wage income inequality
• Findings are consistent with previous studies
• P90 and P95 employees have done very well, P10
  employees (not females) have gone backwards
• The aggregate picture is misleading not
  everyone has gained from recent reforms
• The disappearing middle thesis is still alive
  and well particularly for males (but need more
  research on this)