The Determinants of Earnings for Indigenous Australian Workers

Reducing the disadvantages faced by Indigenous Australians in relation to employment outcomes has become an important issue. There have been several studies which have focused on the factors associated with Indigenous Australians’ labour force status. There is, however, only limited research on the factors which influence the earnings of Indigenous men and women. This paper enhances this literature by providing a detailed analysis on the factors which determine the earnings for Indigenous Australian workers, conditional on them being employed. The paper also estimates how Indigenous men and women’s labour force participation decisions respond to changes in their potential earnings. The paper focuses on the extent to which human capital theory can explain the earnings of Indigenous Australians. It finds that the earnings of Indigenous Australians can largely be explained by their education levels and a number of demographic and job characteristics. The paper also finds that Indigenous Australians’ labour force participation decisions respond positively to increases in their potential earnings. The results suggest that the human capital framework is appropriate for explaining Indigenous Australians’ earnings.