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.
Comparison using ratios of percentiles The chart below uses ratios of the percentiles in which each household lie. The ratios are P90/P10 that is the ratio of income at the top, as well as the income at the bottom; P80/P20 which represents the percentage of income at the 80th percentile and the 20th percentile; and P80/P50 which is the ratio between the 80th and the 50th percentile.
Figure 2: ratio between percentiles from 1994-2012
Source: ABS 2013 According to the chart above, in 2011-2012 the 90th income…