Today I am here to talk about CEDA’s latest research How unequal? Insights on inequality.
But can I start by talking briefly about CEDA’s broader research agenda for this year. Through 2018, we will be examining community attitudes to economic growth and development, how we best achieve growth and how we translate growth into meaningful economic development.
For CEDA 2018 is a year when we are going back to first-principles in terms of our own purpose – that of economic growth and development.
After 26 years of uninterrupted economic growth, we want to explore the distinction between economic growth and economic development.
Exploring levels of inequality and ensuring the benefits of growth are being distributed fairly, is an important first step.
Our agenda to examine economic development in 2018 is therefore not complete without examining this issue.
Today I want to speak on two areas:
- Firstly, I want to provide an overview of the CEDA research and why we undertook this research; and
- Secondly, I want to discuss what this research shows us and the emerging issues.
So to get started, why this research report and why now?
Since the GFC, talk of inequality has been increasing and that includes in Australia.
However, in 2017 inequality became a major focus of political debate. And not just here in Australia.
Globally, a range of eminent experts and institutions were bringing inequality to the centre of policy debate.
- Pickett and Wilkinson’s The Spirit Level: Why More Equal Societies always Do Better
- Joseph Stiglitz’ The Price of Inequality
- Thomas Piketty’s Capital in the Twenty-First Century
- And new research agendas on inequality and inclusive growth from the IMF and OECD
Like some of the world’s highest profile economists and economic institutions, CEDA is concerned that:
- Inequality drives a wedge between those seen to be benefitting from economic growth and those who are not, undermining social cohesion;
- We are concerned that high and increasing inequality can contribute to adverse societal outcomes including increased crime and political instability; and
- That significant inequality in income and employment outcomes can weigh on capital formation, skills formation and productivity.
Conversely, improvements in income, wealth and the opportunities that underpin them, when shared broadly through society support economic development and proactive economic reform agendas.
CEDA’s aim in undertaking this research was to provide analysis of Australia’s position from a selection of researchers and draw on a range of available material to provide clarity on the issues we should be focusing on in this space.
The three main areas we sought to address were:
- What inequality means and how is Australia doing
- Whether Australians enjoy equality of opportunity; and
- How inequality might change in the future
To start, we wanted to look at inequality from an ethics perspective, often in the debate around inequality the focus on the real issue – inequality of opportunity – is lost.
Not all inequality is unfair – that is to say that not all outcomes that are unequal are unfair – but we should seek to ensure that each person is offered as equal a starting point as any other.
We know that for a productive, competitive economy, you there will be some level of inequality, but the real question is have we done enough to ensure equality of opportunity?
To use a term coined by Labor Leader Mark Latham back in 2004, and later adopted by the Obama Administration, have we done enough to deliver the ‘ladders of opportunity’?
And the answer to that in some areas, is clearly no.
In addition, there are new risks emerging – for some, rungs on those ladders are missing, or becoming too far apart to reach.
Firstly, let me set out some key facts.
I noted at the outset that since the global financial crisis concerns around inequality appear to have grown – yet measures of income inequality in Australia have not risen since the GFC and by international standards we are doing OK.
When looking at inequality, the most commonly cited measure is the Gini coefficient – it ranges from zero to one and the higher the coefficient the greater the income inequality.
As shown in our report, based on ABS data this measure has fluctuated in Australia since the global financial crisis, but has not increased.
To give some international context, we rank better than 13 other OECD economies but worse than 21 others.
The trends for wealth and consumption inequality are broadly similar.
Now I don’t want to hide the fact that inequality on this measure did increase in the decade from the mid-90s.
But interestingly it is more recently - when the data shows that inequality has not worsened - that debate on inequality really seems to have elevated in its intensity.
An interesting way to look behind this is to look more closely at how the distribution of income has changed.
From the mid-1990s to mid-2000s you can see the proportion of households on lower incomes decreased, and the proportion on much higher incomes increased.
This was a period of healthy income growth for most households, but especially so for higher income households.
The highest quintile grew 45 per cent compared to 33 per cent at the lowest quintile.
When we look at the period after the global financial crisis, we see the distribution of household income has been stable.
It’s also important to note that the Melbourne Institute’s Household and Labour Dynamics in Australia or HILDA database shows a different trend to the ABS – that is that income inequality has been largely the same since the survey began in 2001.
Those who are concerned that Australia is becoming a less egalitarian society may be surprised by these results.
But there are of course other significant issues to consider.
It is important I think, that over the period we are looking at, that is since 2007-08, income growth has stalled
– average weekly household incomes grew by just $27 to $1009 per week over this period.
Stagnant wages growth is something highlighted in our report, as a significant factor in people feeling as if inequality is on the rise.
Another is the increasing income of the top one per cent of income earners.
There is, for example, clear evidence that the income share of the top one per cent of income earners is higher than it has been for some decades.
And of course, the different ways to assess and present information on inequality, and the importance of the timeframes considered adds to complexity and confusion.
To illustrate this, I did a quick google search on the topic of inequality in Australia and here are some examples of the articles and headlines that came up:
- “The ABS is wrong – inequality is getting worse”
- The real story on inequality – an article which began… lies, damn lies and inequality statistics
- Four things you need to know about inequality; #1 – income inequality is low and decreasing in Australia.
To help increase clarity in the future, one of CEDA’s recommendations in our report, is to add an authoritative voice to the debate.
We are calling for the Productivity Commission to undertake a five-yearly review of inequality.
The purpose of this would be to monitor the overall levels of inequality – and this is important because we should keep a disciplined eye on and measure the things that matter to us and our society.
But importantly our intention is also for this review to focus in on areas where we think more needs to be done… and should have been done already.
While overall Australia is doing well, there are four areas we need to closely monitor and to do better on and they are:
- Educational inequality;
- Postcode inequality;
- Intergenerational inequality;
- Emerging technological inequality.
These issues go to the heart of inequality of opportunity.
Firstly, I’d like to highlight that despite Australia’s unbroken run of economic growth, 13 per cent of our population is living beneath the poverty line.
Let me take a moment to repeat that – after 26 years of uninterrupted economic growth, a record amongst developed economies, almost 1 in 7 Australians is living in absolute poverty.
Secondly, despite our strong egalitarian ‘fair go’ culture, there have been suggestions by some ‘class’ is taking greater hold in Australian society.
And aspects of our research lend weight to that view.
That is to say that where you live, and go to school and the education levels of your parents have a significant impact on your future prospects.
We will be talking about this more during our panel discussion, but a few key takeaways from the report are worth noting.
I’ll start with education and postcode inequality, two areas where we should have done better and need to improve.
On schools and schooling, we know there are significant gaps in achievement between students with lower or higher educated parents - up to 4½ years for writing in the case of NAPLAN results for year 9.
And we know that rural schools face a significant shortage of teachers while disadvantaged schools can suffer from a more limited curriculum.
The inequality of educational outcomes in Australia is on par with the United States and greater than other peer economies like Canada and the United Kingdom.
We need to do better in this space and the rapid technological changes occurring mean there could be significant consequences for our economy if we don’t do better.
Postcode or geographical inequality
Next, we must also recognise that location plays a big role in equality.
As Patricia Faulkner notes in her chapter in our report, research undertaken for Jesuit Social Services and Catholic Social Services provides compelling evidence of this.
In New South Wales just 37 or six per cent of postcodes account for almost 50 per cent of the greatest disadvantage in that state for indicators such as unemployment, domestic violence, criminal convictions and disengaged young adults.
In Victoria, it’s not much better with just 27, representing four per cent of postcodes, accounting for almost 29 per cent of the greatest disadvantage on indicators such as unemployment, criminal convictions, disability, child maltreatment and family violence.
The other states and territories have similar results.
Again, after two and a half decades of uninterrupted growth the persistence of this kind of concentrated geographical disadvantage, and lack of progress in reducing it, is deeply concerning.
We need different approaches and substantial investment in integrated support at a local level.
CEDA’s report endorses place-based initiatives, collaboration across sectors, better integration of services and initiatives, greater transparency around spending and impact, and better access to and use of data on disadvantaged populations.
Based on the facts around absolute poverty and the adverse cycle of the geography of disadvantage, CEDA also adds its voice to the chorus of those calling for a lift in Newstart payments to a more adequate level.
Future of inequality
Can I now quickly touch on the issue of intergenerational inequality.
This topic is attracting attention and comment driven by concerns around future jobs and trends in intergenerational wealth including in terms of the implications of housing affordability on younger generations.
Professor Peter Whiteford’s analysis in our report suggests the full picture is mixed at this point.
First, he highlights findings from the Luxembourg Income Study that show the incomes of young Australians grew faster than older households between 1985 and 2010.
Australia was the only country among the eight advanced economies analysed where this was the case.
Professor Whiteford’s own analysis of ABS data reinforces this finding.
However, there is a different story when it comes to wealth.
In the last decade, the wealth of older generations has increased more rapidly.
This has been driven by increasing superannuation wealth as retirement approaches, and increasing property wealth.
Younger households have seen declining home ownership and higher overall indebtedness.
For this reason, we draw attention again to CEDA’s recommendations from late last year for all governments to address the affordability of housing for young Australians.
In particular, this requires reform of planning restrictions and a number of current taxation arrangements including capital gains tax. Conclusions reinforced in the Productivity Commission’s Shifting the Dial report.
Now finally, let me turn briefly to the issue of technological inequality.
There is little doubt that technology is reshaping our world with dramatic implications including less certainty about future careers and occupations.
One area that CEDA’s report sought to consider was the nature of work and the potential implications for lifetime inequality.
I am referring specifically to the impact of the gig economy – and a future where it seems increasingly likely that individuals will derive income from several channels or platforms at any point in time.
The exponential growth of the gig economy is currently subject to considerable debate.
Some estimates suggest contingent workers make up one per cent of the workforce and this is growing rapidly.
These workers fall outside common employment arrangements like superannuation.
Given the potential for future economic insecurity and retirement income gaps, we have recommended that the government explore the adequacy of superannuation, pension and savings products for contingent workers.
Finally, I have already highlighted several ways in which vulnerability and disadvantage trigger a cycle of lifetime vulnerability.
We need to carefully reflect on the role that technology might play in this context.
Not just in terms of who can access and make productive use of technologies – Which is fundamental of course as those with better access to technology more likely to develop the skills for the jobs of the future – but also, how data and technology might inadvertently reinforce vulnerability and disadvantage.
Automated decision making is an area that requires careful examination in this regard.
If we do not prepare fast enough to manage emerging risks around technology, it could compound issues for those already disadvantaged.
Algorithms are designed to find trends based on the data fed into them – relying on dominant trends can result in harmful discrimination.
The problem of course is that there is a lack of transparency around the algorithms themselves and their outputs.
For this reason, we are recommending that Australian Governments and businesses should develop and adopt ethical principles and guidelines for the use of AI, data mining and autonomous systems.
- These should align with internationally accepted principles that are emerging.
- Australia should also support emerging market mechanisms for peer review and independent scrutiny of algorithmic models
So, where to next?
The issues that I’ve covered present a slice of the detailed work in the report we are releasing today.
However, they are of course central to Australia’s future economic development and prosperity.
They go to the heart of how we choose as a society to translate continuing economic growth into increased living standards across a range of dimensions.
This will be a strong and continuing focus for CEDA this year and in the years ahead.
At our State of the Nation event in Canberra in June, we will release research that we have been conducting on community attitudes to economic growth and development.
This research will be the start of a nation-wide conversation on economic growth and development that CEDA is undertaking.
It will culminate in a major research report at the end of the year on the purpose of economic growth and development.
And I envisage that this report will set the foundation for our research agenda for coming years.
Our future research agenda will focus on those areas that could make the greatest difference to Australia’s economic development and the prosperity of Australians.
We want all Australians to have the opportunity to reach their intellectual and economic potential, that’s good for our economy and our society.
We hope that our first research report, and the subsequent reports planned for 2018, can help drive policy changes that will contribute to making that reality a little closer.
Melinda's presentation is available to read here.