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Income Distribution: Trends in earnings distribution

Inequality in the distribution of earnings of full-time adult employees has increased in the last decade.

Increasing inequality in the distribution of earnings of full-time adult employees in Australia became evident in the 1980s. However, the increase was small and comparable to trends in countries such as Canada and Japan. An OECD study compared earnings distributions in 17 countries and found that increases in dispersion in the 1980s occurred in twelve of them¹. The early 1990s figures for Australia suggest that this trend may be continuing.

Although the distribution of earnings highlights the disparity between high and low earning employees, an increase in dispersion is not in itself indicative of changing economic well-being. An employee's earnings could decline relative to other employees' and yet still increase in real terms. Similarly, disposable incomes could increase or remain static in relative terms even if gross earnings fell relatively. Distributional changes that increase the difference between high and low earners suggest increasing inequality and increasing polarisation of full-time employees into comparatively high and low earners.

Both male and female full-time adult employees experienced increasing earnings inequality through the 1980s and into the early 1990s. Earnings inequality was consistently greater among men and the rate at which male earnings inequality increased was also slightly greater than that for females.

The OECD considered that among the economic and demographic factors that may have underlain the trend towards greater dispersion of earnings during the 1980s, the decentralisation of wage bargaining was particularly pertinent to Australia¹.

In Australia, the 1983 Wages Accord established a centralised wage fixing system that took into account economic policies and the Consumer Price Index (CPI). Several re-negotiations of the Accord took place such that, by 1987, wage indexation was abandoned due to economic conditions. The replacement was a two-tier system that distributed a flat increase to all workers and made further increase provisional on improvements in efficiency. In 1988 and 1989 efficiency provisions were replaced by award restructuring and training provisions².

Another factor underlying the trend towards greater earnings disparity has been the shift among the full-time labour force towards more highly skilled, and hence higher earning, occupations. Between 1986 and 1993 the numbers of people employed as managers and administrators, and in professional occupations increased by 17% and 26% respectively. The numbers employed as plant and machine operators, and labourers declined by 6% and 4% respectively. The total full-time labour force increased by 4% over the period.

Earnings can be adjusted for changes in the CPI. The resulting pattern of real earnings growth shows that, after considerable increases early in the 1980s, earnings devalued, in real terms, such that by 1987 earnings at the top of the 9th decile and median earnings had returned to 1983 values, and earnings at the top of the 1st decile had dropped to 95% of 1983 values. Between 1987 and 1990, median earnings declined slightly in real terms while earnings at the level of the top of the 9th decile maintained their value. For employees at the top of the 1st decile, earnings diminished in real terms to a low of 92% of 1983 values in 1990. Since 1990, real earnings have increased for the three points in the distribution, but for employees at the top of the 1st decile the real value of their earnings in 1993 was still less (95%) than the value of their earnings in 1983.

EARNINGS DISTRIBUTION RATIOS FOR FULL-TIME ADULT EMPLOYEES

	1983	1985	1986	1987	1988	1989	1990	1991	1992	1993p
	ratio	ratio	ratio	ratio	ratio	ratio	ratio	ratio	ratio	ratio
Males
9th/median	1.60	1.62	1.64	1.62	1.63	1.62	1.64	1.66	1.68	1.70
1st/median	0.72	0.70	0.69	0.68	0.68	0.67	0.67	0.67	0.67	0.65
Females
9th/median	1.50	1.50	1.51	1.50	1.52	1.51	1.49	1.53	1.55	1.56
1st/median	0.78	0.78	0.77	0.75	0.74	0.73	0.74	0.74	0.73	0.74
Persons
9th/median	1.60	1.62	1.64	1.62	1.63	1.62	1.64	1.68	1.67	1.68
1st/median	0.73	0.72	0.71	0.70	0.69	0.68	0.69	0.69	0.70	0.68

REAL EARNINGS INDEX(a) FOR SELECTED DECILES