This paper summarises recent research on changes in New Zealand’s income distribution. It describes how the income distribution has changed during the period 1981 to 1996. It then looks at factors accounting for these changes in the income distribution. The main focus is on social trends, such as household composition, and changes in individual characteristics, such as age, qualifications and employment status. The first part of the paper looks at trends in the income distribution. This shows that income inequality rose in the 1980s and 1990s in New Zealand. The rate of growth was fastest in the 1980s. New Zealand’s level of income inequality has risen substantially relative to the levels in other OECD countries. Wellbeing measured in income terms depends not just on income at a given point in time, but also on the extent to which that income position persists through time. The second major part of this paper focuses on recent research on income ‘dynamics’. Analyses using tax data show that incomes do vary considerably from period to period. However, there is also a considerable degree of income ‘persistence’. The final part of the paper looks at factors contributing to the increase in income inequality. Changes in household composition, (such as the growth in sole parent households and older households without children), account for some of the increase in household income inequality. A growing proportion of workers in their prime earning years, and with higher educational qualifications, has also increased income inequality. These factors can explain up to 50-60% of the overall increase in income inequality.
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