Wednesday, April 3, 2013

What is the Median Australian Income?

My Drum post today, as long time readers of all good blogs would know, owes a bit of debt to Matt Cowgill’s post of a couple years back. In the time since, the ABS has brought out some new figures, so I thought it timely, in light of Joel Fitzgibbon’s remarks about people struggling on $250,000 to update the figures.

One of the things about “equivalised” household income is that you can get a picture of what the disposable income needs to be for every size of household to maintain the same standard of living.

So for example the median disposable income for a single person is $37,180 and for a family with 2 adults and 2 kids it is $78,078.

Here’s what the median income is for different sized households:


The data also lets us have a look at how the different percentiles have grown, going back to 1994. It might not shock you to discover that the 90th percentile has grown the most and the 10th percentile has grown the least (and remember the P90 is not the top 10%, but those in the top 20 to 10%):


Certainly this does suggest the bottom 10% are being left behind. A good way to look at it is compare the ratio of the 90th percentile to the median and the bottom 10:


A clear increase in the size of the income of the 90th percentile compared to the 10th.

The next graph highlights just how far behind the bottom 10 precent are being left:


The gap between the median household and the bottom 10th has widened compared with the gap between the 90th percentile and the median income (though there has been a sharp reduction in the gap since 2007-08, no doubt showing the impact of the GFC on median incomes.

Here’s what the equivalised bottom 10 per cent per household looks compared to the median and the top:


But yes, we should worry about a class warfare being raged against those earning $300,000 or more, and keep as silent as the grave about Tony Abbott’s policy to stop the super tax offset for those earning less than $36,000.


Martin Jones in the comments has drawn my attention to his most excellent post on the link between gross and equivalised income. He has a very spiffy calculator that lets you work out given your equivalised income.


Chris said...

Greg, one issue that your analysis leaves out (as do most analysis of this type) is whether the bottom 10% (or however many percent) are better off in absolute terms even if not in relative terms.

So if the bottom 10% can now afford to buy more than it could 10 years ago, even if the top 10% can afford to buy twice as much more, then the bottom 10% is still better off.

Or, maybe a better way, can the bottom 10% meet what might be termed a reasonable (if only basic) standard of living? If they can (obviously setting that standard is open to dispute), then does it matter what everyone else is earning?

This then leads to a harder question - should be reduce the gap between the top and the bottom income percentiles simply to have a reduced gap, not because the bottom 10% necessarily "needs" more money.

I suspect the answer is that the bottom 10%, or even 20%, barely scrape along and more money is worthwhile when targetted (eg: not 'by choice' unemployed, but if disabled) and that money should come from the better off.

But, in my view, relative comparisons don't raise the right questions. If my pay goes from $90k to $100k and yours goes from $150k to $200k, the fact that you are relatively now much better off than me doesnt mean I need more money.

Greg Jericho said...

Good points Chris. It goes to more the growth in inequality though. The more the growth in an economy goes to the top end rather than the bottom end I would argue creates some pretty big problems in the long term.

Yes the bottom 10% are probably better off than they were 10 years ago, but I think the differentials demonstrates that there is opening up a gap between that bottom 10% and the rest.

I guess the issue is, is being better off than you used to be, a good enough measure or do we need to be wary of society becoming quite segregated economically

Philip Griffin said...

Yes, I think the issue is more than pure economics; social cohesion is also important. It's a pity there's not more debate about this issue, as the trajectory we're on at the moment will see quite a different society in the long term.

Martin C. Jones said...

Good post, Grog.

Readers who would like to figure out what their "equivalised" income is and find out what percentile they fall into can do so here:

Martin C. Jones said...

Clickable link

Greg Jericho said...

Thanks Martin - have included the link in the post.

David said...

On Chris's point, I find it interesting to look at the last 4 Parliaments (a bit more than his 10 years, but not too far away)and see what changes they each made to the tax transfer system. As a very general proposition Parliaments 40 to 42 made changes which on their own had the effect of widening the gap, especially for zero private income folk, whereas Parliament 43 (the current one) has done the opposite. These effects are somewhat smothered by wages growth, but, even there, one could probably say that for Parliaments 40-42 wages and the tax-transfer changes both pushed in the same direction, unlike 43.

You can see a large number of charts showing the tax-transfer changes across the 4 Parliaments on my blog (most posts about that are titled "4 Parliaments - xxxx"). Single people are as good a place to start as any so if you are interested you can check them out here:

A more up to date comparison of various household types in the current Parliament is here:

Equivalisation is a fascinating subject and in theory underpins the rate structure in much of our social security system. However in practice it seems to be ignored, or perhaps runs secondary to a range of other "political" factors. You can see the somewhat scant regard the system actually has for equivalised outcomes at this post:

I should stop there because this is in danger of looking like a ad for my blog posts.

Anonymous said...

Interesting piece and comments.

Can I make a suggestion on naming - sounds trivial but can be useful to re-framing the discussion

The blue bars on the chart you call Equivalised Household Income - that show the top 10% - would be better named "What it takes to live a Top 10 percent Lifestyle (2009-10)"

This less technical name would make it easier to move the discussion away from income to the lifestyle that people are able to live relative to the lifestyles of others in the community (at this point in time).

For example, when somebody says 'my wife and I are on $120K in Western Sydney and we are struggling' the discussion can be moved away from income to lifestyle by saying 'I know you feel its a struggle but don't forget that a couple on that income is able to live a top-10-percent lifestyle (see chart). That is, 90% of people in Western Sydney live a lesser lifestyle that you - they have a smaller house, take fewer overseas holidays, buy the cheaper bottle of wine more often etc. So even though it feels tough sometimes, having enough to live a top-10%-lifestyle is still pretty damn good and it's certainly better than living a bottom 10% lifestyle'

I hope you understand what I am getting at here - by giving the chart a less technical name it can be used more easily to change the discussion from income to the lifestyle you can live relative to other people.

It also (hopefully) allows people to understand, or politicians to explain, that people's personal struggles (which are all legitimate in their own way) are actually struggles to live a particular lifestyle.

And (maybe) it would enable the hypothetical couple in western Sydney (or a politician who is stick of listening to all of this struggle street stuff) to ask ' we have enough to live a top-10%-lifestyle, so why do we feel that we struggle all the time. Maybe we should enjoy our good fortune more and keep a sense of perspective on those tough days'

Or maybe people will just keep whining and politicians will just keep pandering


Greg Jericho said...

That's a good idea John. I won;t change it for this graph, but next time I use it (which is pretty likely) I'll take your suggestion on board.

Anonymous said...

I'm fed up with being vilified and humiliated every time I read some drivel about how our social welfare system makes us bludgers...while I admit there will always be people who take advantage of any system, most people who depend on welfare don't take advantage of the system.

Why are the rich so bloody jealous of the pension or Newstart? Would they rather we STOLE from THEM to survive?

I'm a single mum and a full-time carer of a disabled child. I support a family of 5 on less than $33,000 per year and if it were not for the SALVOS sometimes my children would go without food.

All those careless jokes about the schoolkids bonus being spent on consumer goods are cruel and untrue. I'm so angry I could spit chips!

People should try walking a mile in my shoes before making uninformed comments...grrrrr