Tag Archives: South Australia

South Australia’s Small Gender Pay Gap: Is it Good News?

The gender pay gap in South Australia is around half the national figure – but is this really good news?

This is the sixth post in the series on inequality in South Australia, with the early posts dealing with inequality between households and the later posts looking at structural inequalities. This post continues the focus on structural inequality, and looks at gender inequality – or at least one aspect of gendered economic inequality.

Gender Pay Gaps – Official

The “official” gender pay gap figures used by the government’s Workplace Gender Equity Agency show that the gender pay gap is significantly narrower in South Australia than in the country as a whole. At 7.4% the gender pay gap in South Australia is around half the national average, and is the lowest in the country. However, there is devil in the detail of this official figure.

While the gender pay gap is lower in South Australia, this gap is on lower wages overall and does not necessarily reflect women doing relatively better. ABS Labour Force data shows that the $1541 per week full-time ordinary time earnings for women in South Australia was 95.8% of the equivalent figure at the national level. For men in SA, full-time ordinary time earnings were 89% of the national figure. In theory, this difference could mean that SA has proportionately more women in higher paying jobs, but more likely it reflects labour market segmentation where proportionately more women are in jobs with wages set nationally (e.g. minimum wages or modern awards), while men are overly represented in non-award industries where wages may differ more across the country.

This suggests that much of the difference in the national and SA gender pay gaps is not about women’s pay, but rather because men’s wages in SA are disproportionately lower than the national average. Put another way, rather than the labour market in SA bringing women’s wages up closer to men’s, it is an “equalling down” based on relatively lower men’s wages.

This creates particular challenges for the left and the union movement: how to increase wages in South Australia to closer to national averages without also increasing the gender wage gap? Obviously, a focus on gender segmentation and increasing wages in highly feminized industries like childcare is a start, but it should also be a factor in changes to enterprise bargaining currently under consideration.

Bigger Gender Pay Gaps Beyond the Headline Figure

The “official gender pay gap” based on full time ordinary time figures is only one measure of gendered pay inequality. The table below shows a range of key gender pay gap and wage share data for Australia and South Australia and is necessary because the full-time ordinary time data is limited. It ignores (and arguably institutionalises) gender differences in access to overtime and bonuses.

The first line in the table is the official full-time ordinary time data, but as can be seen in the second line of the table, when overtime, bonuses and other extras are taken into account in total full-time weekly earnings the gender pay gap is much larger. It is still less of a gap in South Australia, but the difference in the national and SA figures is narrower.

However, even these full-time figures ignore the over-representation of women in part-time and casual work. As evident in the third line in the table, the gender pay gap jumps markedly when the average weekly earnings of all employees are included. The gap between South Australian and national figures is much lower here, presumably because of a higher proportion of women in part-time jobs in South Australia. This is confirmed by the gender wage share data in the bottom line of the table, where the difference between the national and SA figures is lowest.

Gender Pay Gaps, May 2022

 AustraliaSA
F/T Ordinary Time Earnings14.1%7.4%
F/T Total Earnings16.5%9.6%
Average Earnings29.7%27.7%
Women’s Participation Rate62.2%58.4%
Gender Wage Share39.0%40.0%
Source: Calculations from ABS Average Weekly Earnings and Labour Force

Gender Wage Share

I have set out elsewhere a rationale for considering, alongside the traditional average pay gap data, the gender wage share – that is, the female share of the total wage pool. The importance of that wage share data can be seen here.

Both nationally and in South Australia, the female half of the population takes home around 40% of the total wage pool. In actual dollars, the May 2022 figures show that men as a whole in South Australia take home $221m more than women each week, for an annual return to gender of $11.5bn. To put that in the context of the local economy, the total sales revenue of South Australia’s biggest company, SANTOS was around $6.9bn in 2021, around 60% of the gender wage share differential.

As I argued in an earlier post about the corresponding national figure of a $200bn annual wage differential, the aggregate gender wage share difference is a significant economic flow that not just reflects but contributes to the reproduction of that inequality.

Changes Over Time

The 2022 data above shows, in short, that while the official gender pay gap is much lower in South Australia, the benefit of this is diluted by lesser participation in paid work by women (both relatively lower participation in the workforce, and relatively fewer hours by those engaged in paid work). As we will see below, these patterns are not new.

The following graph shows the full-time (all earnings) gender wage gap in Australia and South Australia over the last 25 years. While the data on South Australia is more volatile, the gender pay gap in South Australia has generally been below the national figure. In both data sets, the gender pay gap shrinks in the late 1990s, but grows again from 2000 nationally and from 2004 in South Australia through to 2014. The gap then shrinks over the next few years before flattening out in the last few years.

Time series of gender pay gap in full-time total earnings in South Australia and Australia.

However, the gender wage share data tells a slightly different story. There is little difference in the time-series data on South Australian and Australian women’s share of their respective total wage pools. In both data sets there is a small but sustained increase in women’s share (apart from a small dip after the Global Financial Crisis in 2008) (see the black SA line in the graph below). In South Australia women’s share of the total wage pool increased from 35.1% in November 1994 to 40% in May this year. The national figures showed an increase from 33.1% to 39% over the same period.

Crucially though, this story is set against the backdrop noted in a number of my previous posts of a general decline in South Australia’s economy relative to the national economy. This was evident in SA’s share of household income and the labour share of the economy. The graph below shows that this decline also impacts on the gender wage share. While the top line shows that women have been increasing their share of the South Australian wages pool, with that pool in relative decline, South Australian women’s share of the national wages pool has actually shrunk from 2.6% in 1994 to 2.41% this year.

Time series (1994-2022) of female share of total wages pool in South Australia, and South Australian female wages as proportion of Australian wage pool.

While this decline in South Australian women’s share of the national wage pool is alarming, it is made even more problematic because, as noted in the previous post, the wage pool itself is declining as a proportion of the economy.

Summing Up

The official gender pay gap data shows South Australia doing relatively well with the smallest gap in the country, but a closer look at the data tells a less rosy story. The smaller gender wage gap is based on lower women’s participation rates and relatively lower male wages in South Australia. It is not a story of greater female agency in the labour market. The national/SA differences almost disappear when the share of the total wage pool is considered.

And regardless of the comparative story, the gender wage inequalities in South Australia remain significant – with a 27.7% gap in average earnings leading to an aggregate $11.5bn annual wage gap. Further, while women’s share of the South Australian wage pool has increased over the last 25 years, these gains are undermined by the shrinking of that wage pool relative to the national wage pool – a national pool which, with historically low labour shares of GDP, is itself shrinking relative to the economy as a whole.

Beneath the headline gender pay gap data, for South Australian women workers there is a particularly problematic intersection of gender, geographic and class inequalities.

The Labour Share: No Paradise for Workers

This is the fifth post in the series on inequality in South Australia. While previous posts used ABS data to identify and track inequality between households, this post shifts the focus to structural inequality, and questions of class in particular – as evidenced by the changing labour share of the economy. Future posts will look at other structural inequalities based on gender and race.

Structural Inequality

The shift in focus is important because while the household data reveals much about patterns of inequality, it also has many limitations. Household income and wealth data is based on an assumption that households share resources. This assumption is probably unwarranted for many households, including the 13,000 “group households” in South Australia (272,000 nationally) where some expenses may be shared, but income is likely not shared. Further, viewing the household as the basic economic unit hides dynamics of potential inequality within households – most obviously gender and age dynamics, which then have ramifications in society more widely.

Further, the household data produced by the ABS, and used in many studies of inequality (for instance, the Productivity Commission report and the ACOSS/UNSW research) presents a mono-dimensional stratification of income distribution: a continuous spectrum from lowest to highest income/wealth on which all household/individuals are located. The measures of inequality are then based on the relationship of arbitrary points along this continuum such as income quintiles, top-bottom deciles. They do not tell us much about what is driving this stratification.

While it is possible to look at different demographic characteristics of households at various points on this spectrum, it is still largely only a scoring of an end point of distribution – not the mechanism of unequal distribution itself. By contrast, structural inequality is not simply a different location on a spectrum, it is a systemic and often conflictual relation, buttressed by a range of institutional arrangements where the economic inequality drives or at least contributes to the reproduction of that inequality.

Class – the Labour Share of GDP

This description of structural inequality and some of terms above are loose and contested, and there are mountains of academic writings on the subject. I have previously discussed Erik Olin Wright’s attempt to draw together classical Marxist, Weberian and Durkheimian approaches to class. All these approaches offer different insights, and all are added to and cross-cut by analysis of other structural inequalities. However, with no claim to being comprehensive or determinative, in this post I want to keep it fairly simple with just one measure of one structural inequality: class, as measured by the relative financial returns going to capital and labour.

The usual measure of these class-based economic flows is the share of national income going to labour (“compensation of employees” in ABS-speak), or alternatively, the labour share of the whole economic pie (that is, the share of Gross Domestic Product going to labour). I am sure there is a PhD somewhere critiquing the notion that “GDP = the economy”, but nonetheless, the labour share of GDP is a convenient measure as there is a robust ABS data set and changes in the labour share reflect changes in class power within the economy.

The Labour Share Data – National and South Australian

As is well-known, labour’s share of GDP in Australia has been falling in recent times. In 2018, the Journal of Australian Political Economy dedicated an excellent issue to highlighting the issue and examining the causes, and the labour share remains a cause of concern for the labour movement and many on the left.

Rather than add to the debate about causes or solutions, in this post, I simply want to look at the figures and compare the situation in South Australia with the rest of the country. As can be seen in the table below, despite lower average wages and lower workforce participation rates, the most recent ABS data (June 2021) shows that labour share of the South Australian economy was slightly higher than the labour share nationally.

AustraliaSouth Australia
Average Total Weekly Earnings$1,797.10$1,626.00
Participation Rate66.2%62.7%
Labour Share47.7%49.3%

While this suggests a slightly better distribution of income to workers in South Australia (i.e. a more equitable outcome in class terms), as the graph below shows, this is not historically consistent. The labour share in South Australia is more volatile and slumped below the national average in the decade from 1996 to 2006.

Time series showing labour share of economy in SA and nationally from 1990 to 2021. Long term decline in national series, while SA slumped but regained ground from 2010.

It should also be noted that the national data here does not show the current “historically low” labour share discussed in the media. That discussion is rightly based on seasonally-adjusted figures, but these are not published at the state level so I have used the ABS “original” data series to ensure a like-for-like comparison. That said, the seasonally adjusted figures show an even lower labour share nationally (46.1%), so either way, it would appear that SA labour’s share of the state economy is higher than labour’s share at the national level.

While this may appear to be good news for South Australian workers, this is a higher share of a decreasing part of the national economy. In 1990 the SA economy (Gross State Product) accounted for 7.7% of the national economy (GDP). In 2021, SA’s share was 5.7%. As the graph below shows, South Australian labour’s share of the national economy (in orange plotted on the right axis) has declined over the last 30 years, even while largely retaining its share of the state economy (black line plotted on the left axis).

Time series graph repeating SA labour share of GDP, but also showing long even decline in SA labour's share of national economy (GDP)

For South Australian labour there is then a double-challenge – the class challenge of retaining and increasing its share of income, and the development challenge of growing the economic pie overall. Of course this struggle is not unique, but it is a particular challenge given the arguments in previous posts about being at the economic periphery.

Caveats and Conclusion

It is worth emphasising again that the labour share is a class distribution, an economic process rather than a positioning of people or households. Many people and households (particularly higher-income households) have multiple sources of income including government transfers, bank interest, investment income, imputed rents and capital gains. These are different economic flows (class processes) and those households’ labour income does not necessarily determine their total income, lifestyle options or position in society.

That said, labour income is the major income source for the majority of Australian households. Accordingly, changes in the labour share of income are a key contributor to the household income spectrum, while also being important in their own right as a reflection of structural inequality.

In this context, my interim conclusion (to be added to in future posts) is simple: with a declining share of the national economy, it is no paradise for workers[1] – either in South Australia or nationally.

[1]  With apologies to Ken Buckley and Ted Wheelwright for stealing their classic title.

Household Wealth Inequality

This is the fourth post in the series on inequality in South Australia. The previous posts focused on different aspects of inequality in the distribution of income. This post looks at the distribution household wealth, again based primarily on the 2019-20 ABS Housing Income and Wealth data released this year.

Wealth Distribution Between Households

It is well-known that the distribution of wealth is far more unequal than the distribution of income. This is a function of both the cumulative impact of income differentials over years, as well as the ability of wealth to beget wealth (through capital gains and higher average returns on capital).

Nationally, the households in the highest wealth quintile hold 62.2% of all household wealth in Australia, while the bottom 40% of households account for on 6.1% of wealth. The P90/P10 wealth ratio sees the high-wealth households (90th percentile) owning some 52 times the wealth of the low-wealth households in the 10th percentile. (By contrast, households at the 90th percentile earn around 9 times the income of the low-income (10th percentile) households.

There is clearly a massive inequality in wealth distribution, but it is important to note that these high wealth households are not necessarily high-income households. Most obviously wealth accumulates over a life-time and at some point people retire which may leave them with some wealth but low incomes. The ABS data suggests that the wealth-income correlation is not straightforward. For instance, 10% of high-wealth households had low-incomes, while only one-third of low-income households also had low wealth. However, Piketty’s work highlights the correlations at the very top of the income/wealth spectrums where income from capital (wealth) becomes the dominant income stream.

Unfortunately, the ABS does not publish wealth ratios or wealth-by-quintile of data on a state basis, so there is limited data on wealth inequality within South Australia. However, there is some useful data on wealth distribution between states.

SA share of total household wealth

As with previous posts, I start with aggregate wealth rather than the ABS household averages because the aggregates adjust for differences in population. The graph below shows the various state and territory share of total wealth held by households in 2019-20, but plotted against the share of total income and population. It can be seen that NSW and Victoria have a greater share of wealth than of total current income, while Queensland and WA a higher share of income than wealth. South Australia’s share of the total wealth held by Australian households is quite close to its share of income (wealth 6.5% of total, income 6.3%), but both are below the state’s population share.

Column graph showing state/territory shares of national household income, population and net household wealth.
(Note: NT data does not include remote areas)

While this graph is a snapshot of 2019-20, the long-term trends are not easy to discern. My previous post showed that South Australia’s share of national household income has declined over the last two decades, driven in large part by a declining share of the population. However, the columns in the graph below, which show the state’s share of total household wealth, do not show a similar pattern of decline – or any pattern really. This could be a trick of data unreliability (wealth data is less reliable than income data), or of different structures of household wealth (see below) or different levels of indebtedness (which would impact on net wealth – although the data is not available over the long term).

Time series showing SA declining population and income share (as % of national aggregate), but no real pattern in share of wealth bouncing between 5.6% (2016) and 7.2% (2006), and overall approximately the same in 2020 as in 2004.
(Note: data not available for 2000-01 and 2007-08)

I have included this time series data for completeness, but I draw no conclusions from it. Nor can I draw any conclusions on the distribution of wealth between households in Adelaide and the rest of the state. Even though the ABS publishes it, the regional wealth data has such high margins of error I would not rely on it. I think the primary take-out of the data above is that South Australia’s share of national household wealth is lower than its share of population. Or put another way, wealth (like income) is disproportionately held elsewhere – and with only around 6% of both wealth and income, this makes it difficult for South Australia to have an impact on Australia’s political economy.

Structure of Household Wealth

Beyond these aggregate figures, the published data based on average household wealth shows some interesting differences between South Australia and other states in the structure of wealth holdings.

The graph below shows a state-by-state comparison of different components of average household net wealth (that is, the value of household assets minus liabilities). At the highest summary level, it is clear that South Australian households on average have less wealth than Australian households generally (approximately 88% of the national average), and significantly less than states like NSW, Victoria and the ACT. This is seen in the height of the columns on the graph, but it is interesting to note that South Australian households have the fourth highest average wealth. By contrast, SA households have the second lowest average household income. Both WA and Queensland have higher average household incomes, but lower average wealth.

South Australian households fare relatively better in wealth distribution than income distribution, but this is even clearer when we look at the components of this total net wealth. One of the key reasons for SA lagging behind the richer eastern states is the higher value of wealth tied up in owner-occupied dwellings there (the blue at the top of the columns). That is, households in other states where housing prices are significantly higher are likely (on average) to have more of their wealth tied up in their homes. Not counting owner-occupied dwellings, the wealth held by the average South Australian household is just $15,000 less than the national average. The SA average is 98% of the national average.

Column graph showing different components of wealth (real estate, and various financial assets) - net of liabilities. SA has 4th highest level of wealth, but below national average - but much closer if owner-occupied housing assets are excluded.

The amount of wealth held in owner-occupied housing is important because there is considerable debate as to whether owner-occupied housing should actually be considered as wealth. At one level it is clearly an asset which can be sold for money, and (as I have argued in an earlier post) provides housing services which is a form of in-kind income which can be imputed as non-cash household income. On the other hand, as Anwar Shaikh and others have argued, it is not real “wealth” because housing is a necessity and cashing in the asset is not simply transferring a physical asset to a cash asset (with an attached transfer of income from imputed rent to other investment income). Liquidating an owner-occupied house actually leaves the owner worse-off as they will now have to pay rent.

Obviously though, the same is not true for housing properties not occupied by the owner as these are held as investments and can be liquidated in a simple swap to another form of asset.

The wealth tied up in owner-occupied housing is also important because lower housing costs in South Australia (relative to other states) can also translate to SA households holding relatively more financial assets (because their “savings” are not tied up in housing costs to the same extent). This is evident in the graph in the relatively high shareholdings and business assets held by South Australian households (seen in orange), although the ABS warns that there is a high margin of error on these particular figures and some caution is required.

Further though, (despite lower incomes) lower relative housing costs also potentially translate into lower average household debt. In 2019-20, the principal outstanding on loans for owner-occupied dwellings in SA averaged out at $88,500 per household, which was 77% of the national figure, while total household debt as a proportion of household wealth was also lower in South Australia (14.4% of total household assets in SA, 16.4% nationally).

The debt figures are averages of households with and without debt, so those in debt will have much higher amounts owing than these average figures, and the averages will be impacted by the proportions of households with/without debts. However, on its face it does suggest interest recent and predicted interest rate rises will impact slightly less in South Australia than in states (and territories) where average debt is higher.

Conclusion

What all of the above suggests is that, despite the average income of South Australian households perennially lagging behind the national average, SA fares better in the distribution of household wealth. Indeed, when the wealth data is considered without reference to owner-occupied housing (which is not transferable or income-earning in the same way as other assets), average net household wealth in South Australia is pretty close to the national average.

However, at the aggregate level, South Australia’s small share of both income and wealth shows that there are still significant issues around the state being relatively marginal to income distribution and wealth accumulation in the national economy. This has not (yet) flowed down to impact on average household wealth, but the wealth data does little to relieve the concerns highlighted in previous posts about SA being at the economic periphery.

And finally, this focus on geographic inequality should not blind us to the massive inequality of distribution of wealth within the state. There is little reason to assume South Australia is immune from the national pattern where the majority of wealth is held by the richest households and the lowest quintiles hold almost no wealth. The dual challenges remain: to get a bigger share of national economic development for South Australia, while distributing that share more equitably within the state.

The super-rich don’t live here: Inequality in South Australia

Context

This is the second of a series of posts on inequality, with a particular focus on South Australia. The first post highlighted differences in the share of the national household income going to different states, and the long-term decline in South Australia’s share of household income.

This post shows that, while household income may be lower than other states (except Tasmania), the distribution of income between households in South Australia is more equal than the national average.

Again, unless otherwise stated, the data here is drawn from the ABS Household Income and Wealth series. However, the data on the “share of total income” that I flagged as crucial in my previous post is less important here because the proportion of households in each quintile is the same. That is, there is no dynamic from changing population numbers.

The ABS Data on Inequality in South Australia

While the overall pattern of income distribution and inequality within South Australia is similar to the national pattern, by almost all measures in the ABS data, income distribution within South Australia is slightly more equal than for the country as a whole.

The table below summarises key measures for both gross household income, and for equivalised disposable income (that is, after-tax income adjusted to equivalent household sizes).

Table showing ABS measures of inequality in South Australia by both gross and equivalised income quintiles.

The first line is the income share of the lowest two income quintiles, with those households in South Australia having a slightly higher share than the national average.

The second line is the P90/P10 ratio which refers to the ratio of income of high and low income households, specifically, high-income households at the top of the 90th percentile by comparison with those in the 10th income percentile. These high-income households in South Australia received 8.19 times the gross income of households at the low (10th percentile) end of the income spectrum. This represents significant inequality within South Australia, although it is less than the Australian average ratio of 8.98.

The third line is the Gini Coefficient, which is a complex statistical measure where lower numbers represent more equal income shares (0 would be perfect equality, and 1 would be absolute inequality with one person receiving all income). While the Gini coefficient is widely used, I don’t find it particularly useful. The number is meaningless of itself (I still have to look it up every time I see it) and the importance of a difference at the second or third decimal point is hard to grasp. Again though, the Gini Coefficient shows SA has a slightly more equal income distribution than the national average.

It is also worth noting that in each case, the equivalised disposable income figures are much more equal than the gross income figures. This demonstrates the importance of both household size and the redistribution impact of taxes. But in each metric in both gross and equivalised data sets, the South Australia figures are slightly more egalitarian than the national ones.

Top End Drivers

It is important to note that the differences between South Australia and the country as a whole are not the same across all income quintiles. The incomes of those on the lowest incomes in South Australia are much closer to those on the lowest incomes nationally than is the case for those in the highest income brackets. The average (equivalised disposable) income of the lowest income quintile households in South Australia was $403p.w. in 2019-20. This was 97% of the national figure for the lowest income quintile. By contrast, for the highest income quintile, the average income in South Australia ($2,015p.w.) was only 90% of the national figure.

The same pattern is evident in the graph below, which shows the income at the top of the selected percentiles. The gap between South Australia and the national average increases as we move up the income spectrum. (The equivalised data provides a more like for like comparison, but the gross data [not plotted below] shows proportionately higher incomes at the top of the range in South Australia. The difference in the two data sets suggests that that relatively higher incomes in gross data are driven by larger household sizes rather than higher individual incomes).

Line graph of equivalised income at the top of percentiles, 2019-20 for South Australia and Australia. Both lines upward sloping but with a gap widening as we move up the income scale.

This overall pattern is perhaps not surprising given that the incomes of many of those in the lowest income brackets are set nationally (e.g. social security and minimum wages) and are the same regardless of location. However, the patterns do highlight a key issue in the analysis of inequality – the importance of what is happening at the top end. In this case, it appears that the incomes at the high end of the South Australian spectrum are much lower than those evident in the national data. This reduces income inequality in South Australia, but also contributes to South Australia’s relatively low income share overall.

Census Data

The recent Census data provides a different perspective on the same phenomenon. The census only collects data in brackets of total household income, but the graph below shows the proportion of households in each bracket. South Australia has proportionately more households in the low-to-middle income brackets, but proportionately fewer in the brackets over $2,500 income per week. In particular, the top income bracket has the biggest gap of any bracket, with 12.4% of households nationally receiving more than $4,000 per week, by comparison with only 8% of South Australian households.

In short, the rich and super-rich don’t live in South Australia (or at least not in the same numbers as elsewhere in the country).

Line graph showing proportion of households in each ABS income bracket for Australia and SA.

Inequality in South Australia Over Time

While my previous post highlighted a long-term decline in South Australia’s share of national household income, the changes over time in inequality within South Australia have been less clear. The graph below shows both the P90/P10 ratio (on the left axis) and the income share of the lowest income quintile (right axis) since 1994/95. Some caution is needed as there were methodological and data series changes in 2003-04 and 2007-08, but both indicators have remained fairly steady over the last 25 years.

The blue line of the P90/P10 ratio does show an increase in inequality in South Australia between high and low income markers from the mid-1990s until the Global Financial Crisis in 2007-08. However, the income gap began closing from that point until 2013-14 when inequality began rising again – at the same time as the income share of the lowest quintile began to fall. It remains to be seen if this is simply a fluctuation or the beginning of a period of further rising inequality. But at a minimum, we can say that the level of inequality in South Australia is long-standing and not getting any better.

Line graph showing time series of two measures of inequality in South Australia: P90/P10 ratio, and the lowest income quintile share from 1995 to 2020.

Conclusions and Caveats

In summary, the data above shows that while South Australia is not getting an even share of national household income, inequality within SA is at least a little less than the national spread. Crucially though, both these phenomena appear to be driven at least in part by a proportionate lack of high-income households.

Again, all this data comes with caveats around the limitations of analysis by income quintile (and the lack of accounting for non-cash incomes). In particular, the crucial top 1% of income earners are invisible in the ABS data.

Perhaps though, the biggest caveat is that South Australia is not a singular entity and the analysis above is based on only one formulation of income inequality (between households). There are other important ways to consider income inequality beyond households, and there are also geographic differences within South Australia. These will be the subject of future posts in this series.

Inequality between Australian States: Household Income

This is the first of a series of posts on inequality, with a particular focus on South Australia. The series begins with income inequality between states, but will then consider inequalities within South Australia. Unless otherwise stated, the data is drawn from the Australian Bureau of Statistics’ Household Income and Wealth series, but the posts often use different categories and ask different questions to those presented in the ABS data.

The primary analytic used here is often the share of total income. It is an aggregate measure used because the more usual “average” figures (mean or median) tend to individualise social and structural issues. Further, the average figures do not account for the changes in numbers of people or households within a category. This is a parallel argument to one I made in relation to the gender wage gap, but in the case of the inequality highlighted in this post, the share of total income takes account of for both differences in household income and population changes. As will be seen, this makes a difference in the story told by the data.

The share of total income as a measure of inequality between states is also important in its own right because it highlights the relative resources available to different communities. A millionaire recluse living on their own island may have a high average income, but that is the only resource available to them. By contrast, a larger community may have much lower average incomes but far more resources which can be taxed and mobilised for the community.

Inequality between States: 2020 data

In 2020 South Australian households accounted for 6.3% of all household income in Australia, while constituting 6.9% of the population. This may appear to be a small difference, but is actually quite significant. This 0.6 percentage point difference is approximately 10% of the income share. It equates to around $130m per week or $6.7bn per year which would be in the South Australian economy if the state’s share of income matched its population share.

Putting the data in this form highlights the wicked dilemma of this inequality between states. South Australia (and other lower-income states) do not have the same income resources to drive the development which could see it catch up to the other higher-income states. If there are no other national financial redistributions, the inequality is perpetuated. This potential cycle is one reason why federal government support and the distribution of the GST pool in favour of the poorer states is crucially important.

As the graph below shows that SA is not alone in having a lower share of income than population. Queensland has the largest gap between income and population shares at 0.8 percentage points, but this is on a relatively large base (equating to just 4% of the income share). Tasmania’s income share is 0.3% below its population share, but this is particularly significant when the population share is only 2.3% of the whole in first place.

By contrast, WA has the highest gap with income share greater than their population share. Their 10.7% share of national household income is 0.5 percentage points above their population share. This equates to about 5% of their population share. Again, the percentage differences may appear small, but constitute significant amounts of money and represent significant inequalities between Australian states.

Australian State and Territory Share of National Household Income plotted alongside share of population to show inequality between states.

It is noteworthy that these figures do not simply reflect differences in household income. Average (gross mean) household income in South Australia was $1,989 per week, which was 85.4% of the national figure ($2,329). Tasmania’s average household income was 75% of the national average. But both SA and Tasmania also have smaller households on average, which pulls their income averages lower.

By contrast, the average gross household income in the Northern Territory was $2,711 – the second highest in the country and 16.4% above the national average. This would seem surprising, but the territory data excludes remote areas. The result is also a product of larger household sizes (average of 2.9 people per household in the Territory, as opposed to 2.6 nationally). The NT’s share of national income roughly reflects their population share.

Of course some of these demographic differences would be captured had I used the ABS equivalised income data sets (which are adjusted to take account of household size). However, using the data on shares of national income to measure inequality between states also provides important insights on changes over time.

Changes over Time: South Australia

While South Australia’s share of national household income is currently below its share of population, its income share has also declined over the last 20 years. As shown in the graph below, the state’s share of national household income reached a high in 2003-04 at 7.4%, but dropped below 7% in 2007-08 and has not recovered.

South Australian share of total national household income 2001 to 2020, showing long term decline.

In all years the SA share of national household income was below its population share, while average household incomes were also consistently below the national average. However, (again) it was not simply about lower average household incomes. As the graph below shows, the South Australian average household income as a percent of the national average fluctuated over the period. It ranged from a high of 91.6% of the national average in 2003-04 to a low of 81.3% in 2013-14, before returning by 2019-20 to close to its 2000-01 value around 85%. In that sense, while changes in household income provide short term fluctuations, what is really evident in the graph below (which plots the three variable as indexes with the same starting point) is that the overall decline in South Australia’s share of income has been driven much more by the decline in population share.

Index of Changes in South Australia's Income and Population showing volatility of average income in SA as % of national, but steady and same decline of population and income share.

Again, the fall of 0.7 percentage points in South Australia’s share of national household income over the period may seem minor, but it is actually a drop of around 10% of South Australia’s share of national income. It equates to well over $8bn annually in current dollars that would be in SA if income share had been maintained its share of national household income over the period.

While the COVID pandemic has changed some migration and population patterns, the longer-term trends remain to be seen and the wicked problem of maintaining income and population shares is likely to remain for a while yet.

Caveats

There are of course a number of caveats to the above data and analysis. In previous posts I have been critical of these household income figures: (here) for not taking account of capital gains and non-cash housing income, and (here) noting Piketty’s critique of the categorisation and data sources. The ABS does publish some data on non-cash income (imputed rents, and “social transfers in-kind” [i.e. provision of free services like health and education which do not appear in household budget]). This provides a fuller account of household income, but it is still without capital gains and is not published at the state level.

Without that state data on total income, the analysis is incomplete. It is likely that imputing rent for owner-occupied dwellings would reflect higher rental prices in eastern states and increase the differences between South Australia and some of those states. By contrast, the social transfers in-kind are likely to disproportionately benefit the lower-income states and reduce inequality. However, without the data I can’t be sure or estimate the extent of impact.

Conclusions and Implications

Even with these caveats though, the income share data does show significant geographic inequality between states. Alarmingly, it also shows the situation is getting worse for South Australia and points to a vicious cycle of falling relative incomes leading to shedding population which itself leads to lower incomes shares and a decreasing ability to generate the things that could build/maintain population and income shares.

It is also coincidental but noteworthy that the period studied here is the period since the GST was introduced. That is important because the formula for the distribution of the GST is explicitly designed with an equalisation objective to “provide states with the opportunity to provide their residents with comparable services” (Commonwealth Grants Commission). The formula is based on a complex range of metrics (not income shares) and the distribution has been controversial. Western Australia in particular in recent times has complained of not getting their fair share. However, the data in this post suggests not only an ongoing need to support a redistributive approach to states with weaker income and revenue, but indeed that more needs to be done (within and/or beyond the GST).

The alternative is greater inequality between states driven by some states capturing a greater and greater share of national income and population, leaving the weaker states in their wake.