Abstract
This article analyses changes in the distributions of working-age individuals' earnings and total income in New Zealand over the period 1998–2004. We find that there have been broad gains in income across the distribution, suggesting the spoils of growth have been shared widely. Mean and median earnings increased 15 and 23 per cent respectively, while mean and median income increased 12–13 per cent. Inequality, as measured by the Gini coefficient, was more stable: earnings inequality fell 4 per cent, while income inequality was unchanged. The main drivers of the changes were employment and real wage growth. We estimate that roughly one-half of the growth in average incomes was due to employment growth, and one-quarter each to demographic changes and wage growth. The relative employment and wage contributions varied across the income distribution: employment growth dominated gains at the lower end of the distribution, while wage gains dominated changes at the higher end.
Highlights
The dramatic increases in income inequality in New Zealand during the late 1980s and early 1990s have been widely documented.1 This was a period of both significant economic and social policy reform and stagnant economic growth
Our analysis in this paper shows that this growth has resulted in broad gains in income to working-age individuals, measured at both the individual-level and allowing for resource sharing within households, suggesting the spoils of growth have been shared widely across the income distribution
We have provided an analysis of the relative contributions of changing sociodemographic characteristics and employment, and of economic returns to these factors, to the observed changes in incomes at different points in the distribution
Summary
The dramatic increases in income inequality in New Zealand during the late 1980s and early 1990s have been widely documented. This was a period of both significant economic and social policy reform and stagnant economic growth. We describe the contributions of earnings, and employment, hours and wages, to the relative changes in income across the distribution This provides a more nuanced description of relative changes across the distribution than provided by the trends in the summary statistics, and shows that there have been strong increases in income, of up to 20 percent, in the low-mid range of the distribution. We adopt a method developed by Juhn, Murphy and Pierce (1993) to decompose changes in individual and equivalised household incomes into observable sociodemographic and human capital, employment, wage (returns), and unobserved effects at various points of the respective income distributions The results from this analysis are largely consistent with those described previously. The attribution of the changes to employment and wage effects across the distribution indicate that the gains to individuals at the lower ends of their respective distributions have been primarily driven by employment growth, while the gains in the higher reaches of the distributions are largely the result of wage growth
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