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the social report
te pūrongo oranga tangata 2004
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bullet Income Inequality
bullet Population With Low Incomes
bullet Population With Low Living Standards
bullet Housing Affordability
bullet Household Crowding
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Income Inequality

Definition

Income inequality refers to the extent of disparity between high and low incomes. The measure used here is the ratio of the 80th percentile to the 20th percentile of the household disposable income distribution (ie the ratio of a high household income to a low household income). The higher this ratio, the greater the level of inequality.

Relevance

The degree of income inequality is often regarded as an important aspect of the fairness of the society we live in. A high level of income inequality may also be detrimental to the level of social connectedness across society.

Current Level And Trends

In 2001, the disposable income of a household at the 80th percentile was 2.7 times larger than the income of a household at the 20th percentile. In 1988, the ratio was 2.4. Income inequality rose between 1988 and 1991, then fell slightly, and has been rising since 1994. The rapid rise occurring between 1988 and 1991 was largely due to widespread economic reforms, combined with major changes to the social welfare system. The economic recession and large rise in unemployment exacerbated inequalities.

Most of the observed increase in inequality has been due to a relatively larger overall rise in the incomes of the top 20 percent of income earners, particularly between 1988 and 1990 and between 1994 and 1998. Incomes of those in the bottom 20 percent have remained approximately constant after adjusting for inflation over the whole period. The middle 60 percent experienced some slight decline between 1988 and 1994 followed by increases between 1994 and 1998.

Figure EC2.1   Ratio of the 80th percentile of disposable household income to the 20th percentile of disposable household income, 1988-1998, 2001
Figure EC2.1 - Ratio of the 80th percentile of disposable household income to the 20th percentile of disposable household income.
Source: Derived from Statistics New Zealand's Household Economic Survey by the Ministry of Social Development
Note:
1. This measure does not adjust for household size
2. The weightings of the records in the sample have been revised for all years since The Social Report 2001

International Comparison

Comparisons with other OECD countries are available using a different measure, the Gini co-efficient.51 During the mid-1990s, New Zealand performed worse than the OECD median and ranked 15th out of 21 countries. The best performers were the Scandinavian countries. Australia, the United Kingdom, the United States and Canada, along with New Zealand, were in the bottom half of the OECD for income inequality.52

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