Towards an index of relative Indigenous socioeconomic disadvantage

Author/editor: Gray, MC, Auld, AJ
Year published: 2000
Issue no.: 196


Understanding geographic variations in the socioeconomic status of Indigenous peoples is of importance when developing policies aimed at reducing the level of Indigenous disadvantage. Knowledge of geographic variations in socioeconomic status provides an understanding of some of the underlying structural reasons and impediments to improving the socioeconomic status of Indigenous Australians.

This paper explores how a variety of indicators of socioeconomic status that can be combined to form a composite index of relative socioeconomic disadvantage for Aboriginal and Torres Strait Islander Commission (ATSIC) regional council areas. Data from the 1991 and 1996 Censuses, augmented with administrative data from ATSIC are used to construct an index of relative socioeconomic disadvantage for the 36 ATSIC regional council areas. The changes in relative socioeconomic disadvantage between 1991 and 1996 are also analysed. The estimates in this paper are the first for Indigenous Australians using 1996 Census data.

The limitations of relative indexes of socioeconomic disadvantage, particularly with respect to Indigenous Australians, are discussed. Particular attention is paid to data limitations which are exacerbated when comparing relative socioeconomic disadvantage over time. However, in spite of the many limitations, carefully selected variables can be used to estimate a ranking of socioeconomic disadvantage of ATSIC regional council areas.

This research paper is timely as the Commonwealth Grants Commission (CGC) is conducting the Indigenous Funding Inquiry, measuring the relative need of Indigenous people in different geographic regions. In this context, an important contribution of this paper is an assessment of the usefulness of a composite index of relative socioeconomic disadvantage for the calculation of funding relativities. The conclusion reached is that relative indexes of socioeconomic disadvantage, such as the one documented in this paper, are of very limited use in calculating funding relativities.

Indicators of socioeconomic disadvantage

Any index of relative socioeconomic disadvantage needs to take account of a range of factors that combine to determine socioeconomic status. Many of the variables included in the Australian Bureau of Statistics (ABS) standard index of socioeconomic disadvantage for the total Australian population do not provide unambiguous and/or culturally appropriate measures of socioeconomic disadvantage for Indigenous Australians. Four variables have been chosen to measure differences in socioeconomic status between ATSIC regions. The variables chosen are family income, housing, educational attainment and the level of non-employment.

  • Access to financial resources is a critical factor in determining socioeconomic status. This paper uses a measure of the proportion of households living in poverty. We define a household as living in poverty if its equivalent income is less than the Henderson poverty line after taking into account housing costs.
  • Housing adequacy is captured using a measure of overcrowding. A household is said to be overcrowded if the total bedroom requirement is greater than the number of bedrooms in the dwelling. The number of bedrooms needed for there to be no overcrowding is then expressed as a ratio of the total number of Indigenous dwellings in the ATSIC region.
  • Low levels of educational attainment are thought to be a primary factor underlying Indigenous disadvantage. The level of educational attainment is measured by the proportion of the people aged 15 years and over who do not have a post-secondary educational qualification.
  • Clearly employment is an important determinant of access to financial resources and hence social status. In addition, employment may have a number of non-pecuniary benefits, including giving a sense of purpose and of having a worthwhile life. In this paper employment disadvantage is measured by the proportion of the population aged 15 years and over that are not employed. CDEP employment is treated here as non-employment.

Estimates of the index of socioeconomic disadvantage

Many aspects of the socioeconomic profile of an ATSIC region cannot be measured directly, but there may be several variables that are recognised as contributing to a particular dimension. Often a single composite of the variables, an index, which reflects the population profile of these variables is a useful summary measure of socioeconomic status. This paper uses a statistical technique Principal Component Analysis to estimate the indices of socioeconomic disadvantage. It is important to note that the indexes are only relative (not absolute) indexes that rank the ATSIC regions according to the level of socioeconomic disadvantage of the Indigenous people residing in them.

The ranking of relative socioeconomic disadvantage of the 36 ATSIC regions shows the following:

  • As a general rule, the least disadvantaged regions are either in the more densely populated southeast or else are regions that encompass a major urban area or State or Territory capital city. The most disadvantaged regions are in the remote areas of Australia. For example, in 1996 the urban areas, Hobart, Wangaratta, Sydney, Ballarat and Brisbane filled the first five spots on the ranking, while the more remote areas Cooktown, Warburton, Apatula and Nhulunbuy filled positions 33 to 36 on the ranking of relative socioeconomic disadvantage.
  • It must be remembered when interpreting these results that the ranking is relative and that the socioeconomic status of Indigenous people in the best ranked ATSIC regions is very low compared to non-Indigenous Australians in the same regions.

When analysing changes in the ranking according to relative socioeconomic disadvantage it is critical to bear in mind that while changes may be due to real changes in relative socioeconomic disadvantage, they may also be a product of variable data quality, both across regions and between censuses.

  • The regions, which had a worsening in their socioeconomic status, are concentrated Coffs Harbour, Tamworth and Wagga Wagga in regional New South Wales. It appears that the general economic decline in these regions between 1991 and 1996 has had a negative impact upon the socioeconomic status of Indigenous people in these regions.
  • The regions, which have improved their relative socioeconomic position, are Alice Springs and Cairns. Cairns is a region in which there has been generally strong economic growth between 1991 and 1996 and it appears that this strong economic performance had impacted upon the economic status of Indigenous people in these regions.
  • The ranking of ATSIC regions between 1991 and 1996 is relatively stable. This suggests that estimates of socioeconomic status based upon data which is several years old may not be too unreliable. This finding is important; almost all data on Indigenous socioeconomic status is several years old by the time they are available.

Limitations of the results

  • The relative ranking of ATSIC regions depends upon the variables included in the construction of the index. Different underlying variables would have resulted in different final indexes and ranking of socioeconomic disadvantage.
  • ATSIC regions are considerably larger than the level at which spatial indexes of socioeconomic status are conventionally estimated. Generally they are estimated using relatively small geographic regions. For example the ABS's Socioeconomic Index for Areas indexes which are estimated at the Collection District (CD) level. The use of a larger geographic unit as the basis of the index masks considerable variation within regions.
  • The analysis assumes that the variables on employment, education, income and housing combine in the same manner to characterise 'disadvantage' across ATSIC regions. However, clearly doses of education in Warburton would not lead to the same labour market opportunities for Indigenous people as education in Sydney, even if it were available. Housing can be viewed in the same manner, while the adequacy of income in terms of purchasing power can also be place specific.

Policy implications-how useful are relative indexes of socioeconomic status?

A key question, in the context of the CGC inquiry, is how useful are relative indexes of socioeconomic status, such as the one constructed here, for determining the needs of groups of Indigenous Australians relative to one another. Relative indexes have several characteristics which limit their usefulness for the purposes of allocating funding between geographic regions.

The primary shortcoming is that relative indexes do not contain any information about the size of differences in socioeconomic status. For example, it is not possible to say how much more disadvantaged the ATSIC region of Apatula is compared to Perth. In practice, the only conceivable common unit of measurement in a composite index is dollars required to alleviate disadvantage or some similar measure. If this approach were to be adopted there are a number of conceptual, methodological and technical issues that would need to be overcome. In practice this may be impossible.


The estimates in this paper of the relative socioeconomic status of Indigenous people in ATSIC regions demonstrates how indicators of a range of socioeconomic factors can be combined to Nproduce a composite index of disadvantage. This approach contributes to an understanding of geographic variations in socioeconomic disadvantage in several ways. First, it allows a wide range of variables to be combined into a useful overall summary ranking of disadvantage. Second, the approach takes into account the correlations between the various aspects of socioeconomic status.

At the present time, census data remain the only comprehensive source of data on Indigenous Australians and any index of relative socioeconomic disadvantage will rely heavily on the variables available from the census. These variables measure only a very limited range of factors which are related to socioeconomic status. There is, therefore, a danger inherent in the use of census-derived social indicators and indexes of social advantage or disadvantage that there will always be a temptation for program managers and policy makers to use these data in the absence of others, despite their well-documented shortcomings, as a means of assessing differences in need between geographic regions.

ISBN: 07315 2631 7

ISSN:1036 1774

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