Application Exercise 10e: Inequality through the pandemic
- Explain why the media release title refers to ‘stable’ household income and wealth leading into 2020. Use data to support your response.
The media release refers to ‘stable’ household income and wealth leading into 2020 because there was little change in the Gini coefficients for both income and wealth distribution between 2017-18 and 2019-20. A Gini coefficient measures the extent to which distribution of the measure (either income or wealth) diverges from perfect equality. The closer the Gini coefficient is to 0, the more equal the distribution, and the closer to one the less equal the distribution. The Gini coefficient for income distribution fell slightly from 0.328 to 0.324 over the period, which the Gini coefficient for wealth distribution also fell slightly – from 0.621 to 0.611.
- Outline which households experienced the greatest growth in income over the period, and which households experienced the smallest growth in income.
Middle income households experienced the largest per-week increase in income – $37 per week.
‘Low-income households’ experienced the smallest growth in average weekly disposable income – only $4 per week.
- Predict the likely impact of the coronavirus pandemic on average household weekly disposable income and wealth. In your response consider both the effects of the virus on the community, and the government response to the virus (containment measures, income supplements etc.)
There would have been mixed effects of the coronavirus on average household weekly disposable income. Firstly, the federal and state governments imposed a series of lockdowns that led to large scale business and school closures, and many people found themselves out of work (the unemployment rate doubled over the period.) This would have led to a significant fall in average weekly income as those who lost employment (and businesses that were forced to close down or simply lost customers) moved from factor income to much lower transfer incomes (government benefits).
However, simultaneously with the enforced lockdowns, the federal government doubled the JobSeeker benefit (received by those who became unemployed) and reduced the eligibility requirements. They also paid a ‘JobKeeper’ wage subsidy payment to businesses that had to shutdown to incentivise them to keep workers employed, even if the workers were not able to come in to work or had no work to do (because of closures). This led to an increase in incomes for many households – often offsetting the loss of income.
- Identify the changes in the Gini coefficients for income and wealth between 2017-18 and 2019-20 and explain what this indicates about inequality in income and wealth distribution
Between 2017-18 and 2019-20, the Gini coefficient for income distribution fell slightly from 0.328 to 0.324. This indicates that the distribution of income became slightly more even (slightly less unequal) over the period. Between 2017-18 and 2019-20, the Gini coefficient for wealth distribution also fell slightly, from 0.621 to 0.611, also indicating that, while much more unequal than income distribution, the distribution of wealth in Australia all became slightly less unequal over the period.
- Identify the movement in average household wealth between 2017-18 and 2019-20.
Between 2017-18 and 2019-20, average household wealth remain relatively unchanged.
- Explain why there is a difference between the ‘average’ household wealth and median household wealth and predict what this is likely to indicate about wealth distribution.
An average is calculated by adding up all the wealth, and then dividing by the total number of holders of that wealth. It therefore shows what each recipient would own if wealth were distributed evenly. A median is, instead, a middle number – if all holders of wealth were lined up from the lowest to the highest amount of wealth, the wealth held by the middle person / household is the median. If the median is growing less rapidly than the average, this means that the growth in wealth is skewed towards those with greater wealth.
- Explain what is meant by average household liabilities and describe the change in the value of this measure over the period considered.
Household liabilities refers to how much households owe to others, and average household liabilities refers to the total liabilities divided by the number of households. Over the period considered (2017-18 to 2019-20) average household liabilities increased by 7.5% to $203,800 in 2019-20.