The Effects of Changes in Family Composition and Employment Patterns on the Distribution of Income in Australia: 1982 to 1997-1998

Melbourne Institute Working Paper No. 19/03

Date: July 2003


David Johnson
Roger Wilkins


We examine income and expenditure distributions over the last two decades using Australian Bureau of Statistics unit record data, presenting both nonparametric kernel density estimates and summary measures of the distributions. Standard errors of summary measures are also reported to facilitate assessments of the statistical significance of inferred distributional changes. The results show that there was a significant increase in private income inequality over the 1980s and 1990s, with most of the increase occurring by the early 1990s. However, the increase in dispersion for disposable income was modest, implying taxes and transfers acted to mitigate the increases in inequality emanating from changes in private income. Using a semiparametric procedure developed by DiNardo, Fortin and Lemieux (1996), we examine the effects on the distribution of private income of changes in the family type composition of the population and changes in the distribution across families of employment, educational attainment and number and ages of dependent children. We find that half of the increase in private income inequality is explained by changes in these characteristics. Changes in the distribution of work across families – for example, an increase in both two-earner families and no-earner families – were the single most important source of the increase in private income inequality, with such changes on their own accounting for half the increase in inequality. Changes in the family type composition of the population also acted, to a lesser extent, to increase inequality. Changes in demographic characteristics (the age, education and country of birth composition of the population) acted to reduce income inequality, while changes in the distribution of the number and ages of dependent children across families had no effect on income inequality.

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