Study finds rapid rise of inequality

Issue 

By Sean Malloy

Inequality in Australia is increasing rapidly. The gains during the postwar period in reducing inequality were lost between 1980 and 1990, argues Phil Raskall, coordinator of social and economic inequality studies at the University of New South Wales. The advent of the recession further increased inequality. "What we've lost between 1980 and 1990 we've lost again in the three years since 1990", says Raskall.

Raskall explains that a dramatic expansion in the levels of inequality "started in Australia in about the mid-'70s, which is about the same time it started in the UK, but a bit later than the US and a bit earlier than Sweden. Inequality gradually increased in the mid-'70s to the mid-'80s and then dramatically rose in the second half of that decade, and more dramatically in the '90s."

Raskall and fellow researchers have so far based their studies on income inequality. However, "we recognise obviously that inequality is a far broader concept related to concepts of the distribution of power in our society and access in a broad range of areas", he said.

"Over the 1980s it wasn't quite that the poor were getting poorer. The poor on welfare were holding their own, [but] that is not to say they were getting an adequate compensation from the welfare system."

During the '80s, says Raskall, "the rich were getting substantially richer, particularly the top 10% were becoming much richer. Working families on low incomes, the bottom 50% of society, lost out over the 1980s.

"In the 1990s inequality is shifting yet again because of renewed levels of unemployment and increases in long term unemployment, as well as the other changes in the labour market. Not only are the rich getting richer, but this time the poor are definitely getting poorer. Rapid rises in inequality are taking place, at least in incomes."

Using a new technique which enables researchers to isolate the causes of inequality and the shift of wealth, Raskall has been able to identify some key factors of inequality growth in Australia over the 1980s and '90s.

"Dividend income, which comprised only 4% of all income in the economy, contributed to nearly two-thirds of the increase in inequality in the '80s. Interestingly enough, it can be almost isolated down to a rather large transfer of shares that took place in the mid-'80s between one group of people and another.

"The group of people who got rid of their shares were the elderly. We can hypothesise that it was related to fears of an assets test or the fact that they were suffering a cut in their living standards and thought they had to get rid of these shares in some fashion."

These shares, he continued, "were all bought by one particular group in the economy. That group was essentially the one to two income families, particularly where the head of the family was in a managerial occupation. People who were already on reasonably high incomes were the ones who purchased these shares.

"From the mid-'80s onwards, the value of dividends went up enormously. These people, whose shares became increasingly concentrated, who were already in this high income group, suddenly found their income shooting up dramatically.

"They further benefited from the introduction of dividend imputation. Dividend imputation meant all extra dividend income basically became tax free.

"The taxation statistics show that the top 1000 of supposed taxpayers, people who have declared their income and are paying over $500,000 tax a year, in 1987-88 received a benefit of around $350 million dollars, or $350,000 per person, out of dividend imputation."

The recession introduced unemployment and limited employment opportunities as additional factors in the increase of inequality.

"In the 1990s the research we've done strongly suggests that it is now the labour market that is the dominant force in determining inequality. Due to the rapid rise in unemployment and the changing nature of the labour market toward part-time and casual work, we are finding that the poor are getting poorer; in particular, working poor families are getting poorer. Those who are in the welfare system are unable to get out of it.

"At the 'top end', we are still seeing that the rich are getting richer through dividends, and share prices are now starting to rise yet again."

Linked to the increase in inequality is "a real generational gap appearing", says Raskall.

"The groups that have benefited out of the last 17 years of rising inequality have been largely those between 35 and mid-50s who are largely male and in managerial, administrative or professional occupations.

"The losers have been definitely the young, as far as the unemployment situation is concerned and indeed the employment situation. Not just unemployment but the nature of jobs they can get — casual or part-time — means the young lose in income terms."

Raskall argues that young people are a major component of the bottom 50% of society that has been hardest hit by growing inequality.

"The share of total wealth of that bottom 50% has actually halved in the last five to six years. There is a generational split of both income opportunities and actual wealth holding.

"At the other end of the scale, elderly people who are still of working age, the over 50 or 55 low income group, have also suffered."

As part of the battle against inequality, Raskall thinks that the effect of inequality on society needs to be fully understood.

"Inequality is not merely some indicator of social well-being. We are starting to see it is the core of a whole series of things. We have research that indicates it is closely related to homicides and suicides and other aspects of criminal activity, other aspects of social problems, and has a relationship with 'real economics'. That is, it is at the heart of a lot of economic problems we are facing."

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