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The Changes in New Zealand's Income Distribution

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  • Des O'Dea

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Abstract

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.

Suggested Citation

  • Des O'Dea, 2000. "The Changes in New Zealand's Income Distribution," Treasury Working Paper Series 00/13, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:00/13
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2000/00-13/twp00-13.pdf
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    References listed on IDEAS

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    1. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    2. Robert Haveman & Lawrence Buron, 1994. "The Anatomy of Changing Male Earnings Inequality: An Empirical Exploration of Determinants," Economics Working Paper Archive wp_104, Levy Economics Institute.
    3. Gardiner, Karen & Hills, John, 1999. "Policy Implications of New Data on Income Mobility," Economic Journal, Royal Economic Society, vol. 109(453), pages 91-111, February.
    4. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    5. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
    6. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December.
    7. Atkinson, A. B. & Bourguignon, F. & Morrisson, C., 1988. "Earnings mobility," European Economic Review, Elsevier, vol. 32(2-3), pages 619-632, March.
    8. repec:dau:papers:123456789/10091 is not listed on IDEAS
    9. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
    10. Alan Deardorff & Ralph Lattimore, 1999. "Trade and factor market effects of New Zealand's reforms - revisited," New Zealand Economic Papers, Taylor & Francis Journals, vol. 33(2), pages 81-85.
    11. Burtless, Gary, 1999. "Effects of growing wage disparities and changing family composition on the U.S. income distribution," European Economic Review, Elsevier, vol. 43(4-6), pages 853-865, April.
    12. Parker, Simon C, 1999. "The Inequality of Employment and Self-Employment Incomes: A Decomposition Analysis for the U.K," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(2), pages 263-274, June.
    13. Jarvis, Sarah & Jenkins, Stephen P, 1998. "How Much Income Mobility Is There in Britain?," Economic Journal, Royal Economic Society, vol. 108(447), pages 428-443, March.
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    Cited by:

    1. The Treasury, 2001. "Geography and the Inclusive Economy: A Regional Perspective," Treasury Working Paper Series 01/17, New Zealand Treasury.
    2. Dean R. Hyslop & David C. Maré, 2003. "Understanding New Zealand's Changing Income Distribution 1983-98: A Semiparametric Analysis," Working Papers 03_16, Motu Economic and Public Policy Research.
    3. Sholeh A. Maani & Rhema Vaithianathan & Barbara Wolfe, 2006. "Inequality and Health: Is Housing Crowding the Link?," Working Papers 06_09, Motu Economic and Public Policy Research.
    4. Dean Hyslop & Dave Maré, 2001. "Understanding Changes in the Distribution of Household Incomes in New Zealand Between 1983-86 and 1995-98," Treasury Working Paper Series 01/21, New Zealand Treasury.
    5. Ron Crawford & Grant Johnston, 2004. "Household incomes in New Zealand: The impact of the market, taxes and government spending, 1987/88–1997/98," Treasury Working Paper Series 04/20, New Zealand Treasury.

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