Income fluctuations over the lifecycle: A cohort analysis of Indigenous and non-Indigenous Australians, 1986-96

Author/editor: Hunter, B, Gray, MC
Year published: 1999
Issue no.: 183


The myth of equality in Australian society is clearly exposed by the large income gap between Indigenous and other Australians. Data from the 1986, 1991 and 1996 Censuses is used to conduct a cohort analysis of the income distributions for Indigenous and non-Indigenous males and females. Single-year age cohorts are used in the first longitudinal regression analysis of Indigenous income. Trends in relative income deprivation are identified.

The income gap between Indigenous and non-Indigenous Australians, 1996

  • In 1996, the overall average income for Indigenous adults was $14,200 (1996 dollars) which was 30 per cent less than the average of $21,100 for the total population. Indigenous people are over-represented in almost all income categories below $20,800 and under-represented in almost all income categories above this income. Around one-fifth of Indigenous people would have to shift their income bracket in order to achieve an equivalent income distribution to that of non-Indigenous people.
  • Breaking the income distributions down by sex shows that the differences between the Indigenous and non-Indigenous populations are largely driven by the distinct nature of the non-Indigenous male income and in particular the high rates of full-time and well-paid employment.

Trends in relative income deprivation, 1986-96

  • An analysis of changes in relative income deprivation for Indigenous and non-Indigenous males and females between 1986 and 1996 is presented. Relative income deprivation is defined as the proportion of the population with an income less than 40, 50 or 60 per cent of the median income. There has been a large fall in poverty among individual Australians between the 1986 and 1996 Censuses with the proportion of the Australian population receiving less than 50 per cent of the median Australian income falling from 27.6 per cent in 1986 to 24.4 per cent in 1996.
  • It is demonstrated that the major reason for the decline has been the recent trend towards ëindividualisationí of welfare payments. The process of individualisation may mean that welfare payments are now more likely to be paid to both married partners rather than one partner (usually the male).
  • A large proportion of the Indigenous male cohort aged between 15 and 24 years in 1986 moved from having no income to having a small income (in the range associated with part-time employment or welfare payments) between 1986 and 1996. The change for the analogous female cohorts was less pronounced.
  • The process of individualisation of welfare payments is particularly evident for females aged between 25 and 34 years in 1986.
  • Indigenous and non-Indigenous male and female cohorts aged between 35 and 44 years in 1986 tended to be moving out of the workforce by 1996 and consequently, experienced a decline in income between 1986 and 1996.
  • The individualisation of the welfare system has a consistent impact on female cohorts aged over 35 years in 1986.
  • For the cohorts aged between 45 and 55 years in 1986 the vast majority of those in employment moved out of the workforce between 1986 and 1996. One feature of this transition was that the non-Indigenous male cohort appear to have left relatively large numbers of lower-paid positions in this period.

Longitudinal analysis of income: 1986, 1991 and 1996 Censuses

The cohort nature of the data allows the first longitudinal regression analysis of the determinants of personal income for Indigenous and non-Indigenous Australians. The advantage of this approach is that statistical techniques can be used to control for unobservable differences between the Indigenous and non-Indigenous populations, such as ability and schooling quality, as well as assimilation, discrimination and other attitudes. The results demonstrate that the failure to control for unobserved differences in existing studies of Indigenous income will induce a significant bias in both empirical and policy analysis.

Policy discussion

The deliberate policy shift in the early 1990s to paying welfare to individuals (ëindividualisationí) has resulted in an increase in financial independence among many females. The intra-family redistribution inherent in individualisation is a positive force promoting equality within the home, if not between households.

The other insight from the analysis is that the generosity of welfare payments or improved targeting of benefits has materially advantaged extremely poor Indigenous people. While this is a positive outcome in its own right, it is important to bear in mind the interaction between tax, welfare, productivity and incentives to work. As long as all these policy instruments are effective, it is entirely appropriate that welfare be targeted to those in immediate need, while tax and productivity enhancing policies focus on the incentive to work.

ISBN: 0 7315 2618 X

ISSN:1036 1774

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