Introduction

In the modern market system of economies in most countries income variations are common between citizens of the same country. At each point in time some individual households earn relatively less while others earn relatively more in the same economy and this result to the inequality in the distribution of national income and national wealth. There are various reasons for the existence of these variations and the negative impacts of the same. This paper tries to explain income distribution in Australia over the past 10 years, investigate the effects of income inequality in the country and the measures the government has taken to achieve an equal income distribution. The paper will use Gini coefficient and comparisons of incomes of households and individuals at different classes of income. The household income data used in this study will be those adjusted by the Australian Bureau of statistics to reflect the requirement of larger households having a higher level of income to achieve the same living standards.

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Individual and household income

An individual income is made up of labor incomes returns on investments and other capital gains. Generally the lower class of citizens in terms of income derive their income from labor earnings while the rich class have multiple sources of income, including labor earnings, incomes from investments and capital gains. The poor class earns little labor wages that are less elastic compared to the wealthy class of citizens whose incomes grow at big margins depending on their choices of investments and the career choices. This is a major factor that creates income inequality in economies as the wealthy class gains more from economic growth than the lower income class.

Income distribution in Australia

The overall trend

Australia has recorded sustained economic growth over the past twenty years. The results of this is the increased earnings not only on labor, but also the capital. This has benefited individuals and households across all income classes (Greenville et al. 2013). The lowest income earners who are the factory and mine workers have benefited from this too. According to the OECD, 2011, the bottom twenty percent of income distribution havereceived an income growth of 3%, which ranks at fifth highest income growth among the OECD. There has been the decline in labor income inequality, but still the overall income inequality has risen since the mid-90’s. The figure below shows the trends in income distribution in Australia from 1982 to 2012.

Figure 1: Gini Coefficient from 1982 to 2012

Source: ABS (2013).

The blue line shows the annual measure of income by ABS while the other trends involve a weekly measure. The income definition varies in the different periods shown by the different lines. Our main focus is the grey line showing the trend in the last ten years. The chart shows a positive and a negative movement for the period 2003 to 2012. This is an indication that there has been a more equal distribution of overall income during the period shown in the graph. The graph, however suggests that the income inequality has risen compared to the previous periods. The graph is relatively higher that for the other from 1982 since the graph shows a maximum of 0.36 compared to the minimum of 0.87 in 1982. The graph also shows that income inequality rose to maximum during 2008 and 2009 falling later in 2011-2012.