Growth and Inequality in Australia
Papers
The Evolution of the Earnings Distribution in a Sustained Growth Economy: Evidence from Australia
Darapheak Tin, Chung Tran & Nabeeh Zakariyya
[Paper][Slides] [Online Technical Appendix]
We study the evolution of the earnings distributions in Australia from 1991 to 2020, a prolonged period of sustained economic growth without recession. Using a 10% sample of Australian taxpayer records, we document key trends in labour earnings inequality, mobility and risk for workers aged 25 to 55. Our findings reveal strong upward earnings mobility for both men and women. Earnings inequality rose modestly until the early 2010s, driven by top earners, but has since declined. The gender gap in earnings inequality has narrowed, and even reversed in recent years, mainly due to a sharp reduction in inequality among women at the lower end of the earnings distribution. Early-life disparities also play an increasingly important role in shaping later-life inequality, particularly for younger cohorts. This reversal in inequality trends has emerged over the past decade, coinciding with a slowdown in economic growth. Moreover, although aggregate macroeconomic conditions have been relatively stable, idiosyncratic earnings risk—captured by dispersion, skewness, and kurtosis—remains persistent, with greater volatility at both the top and bottom percentiles. Women continue to face higher risk and lower mobility than men, despite experiencing stronger average earnings growth over the entire period. Hence, our findings provide new insights into how prolonged economic expansion shapes the dynamics of earnings across different demographic and income groups.
Uninterrupted Growth, Redistribution and Inequality – The Australian Case
Chung Tran & Nabeeh Zakariyya
[Paper] [Slides] [Online Technical Appendix]
To what extent can a progressive tax and transfer system moderate the distributional impacts of uneven economic growth? We revisit this question in the unique Australian context of three decades of uninterrupted economic growth from 1991 to 2020. We use longitudinal tax records of millions of Australian taxpayers and document the distributional impacts of uneven growth and the redistributive role of progressive income taxes and targeted transfers. Our results show uneven sharing of income growth, favoring higher income groups. Increasing tax and transfer progressivity played an important role in moderating these uneven gains across groups and over lifetimes. While inter-cohort income inequality increased over time, lifetime inequality within cohorts was relatively lower and more stable, revealing biases in cross-sectional analyses. Using a dynamic general equilibrium lifecycle model, we highlight efficiency and equity trade-offs when implementing more progressive tax and transfer policies.
Interactive results
+ Income growth over the life cycle
This paper is part of the Australian Research Council funded project “Lifetime Approach to Measuring Inequality in Living Standards in Australia”.
Lifecycle Earnings Risk and Insurance: New Evidence from Australia
Darapheak Tin & Chung Tran
ECONOMIC RECORD, VOLUME 99, ISSUE 325, PAGES 141-174 | JUNE 2023
[Publication] [Paper] [Slides] [Appendix]
This paper studies the nature of earnings dynamics in Australia, using the Household, Income and Labour Dynamics in Australia (HILDA) Survey 2001-2020. Our results indicate that the distribution of earnings shocks displays negative skewness and excess kurtosis, deviating from the conventional linearity and normality assumptions. Wage changes are strongly associated with earnings changes and account more for the dispersion of earnings shocks; meanwhile, the contribution of hour changes is largely absent in upward movement and relatively small in downward movement of earnings changes. Furthermore, family and government insurance play distinct roles in reducing exposure to earnings risk. Government insurance embedded in the targeted transfer system is important in mitigating the dispersion of shocks, whereas family insurance via income pooling and adjustment of secondary earners’ labour market activities is dominant in reducing the magnitude and likelihood of extreme and rare shocks. The magnitude and persistence of earnings risk as well as the insurance role of family and government vary significantly across gender, marital and parental status. Accounting for these non-Gaussian and non-linearity features is important for evaluating the insurance role of government transfer programs.
This paper is part of the Australian Research Council funded project “Lifetime Approach to Measuring Inequality in Living Standards in Australia”.