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The Sensitivity of Personal Income to GDP Growth

Author

Listed:
  • Tahlee Stone

    (Reserve Bank of Australia)

Abstract

This article examines how the income of different individuals varies in response to changes in the state of the economy using individual-level data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. More specifically, the article explores which types of income earners (those in the top, middle or bottom of the income distribution) and which sources of income (labour or capital) are most affected by economic conditions. Results suggest that the incomes of bottom- and top-income earners are the most sensitive to the state of the economy, although for different reasons: during strong economic conditions, the labour income of bottom-income earners rises, due to lower unemployment, while the capital income of top-income earners also rises, due to higher dividend and interest earnings. The effect on bottom-income earners appears to be stronger than that on top-income earners, suggesting that income inequality declines when economic conditions are strong.

Suggested Citation

  • Tahlee Stone, 2016. "The Sensitivity of Personal Income to GDP Growth," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 1-9, December.
    • Handle: RePEc:rba:rbabul:dec2016-01
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2016/dec/pdf/rba-bulletin-2016-12-measures-of-inflation-expectations-in-australia.pdf
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    References listed on IDEAS

    as
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    5. Richard Finlay & Sebastian Wende, 2012. "Estimating Inflation Expectations with a Limited Number of Inflation-Indexed Bonds," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 111-142, June.
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