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Convergence in Income Inequality Across Australian States and Territories

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Abstract

This paper investigates stochastic convergence in income inequality across Australian states and territories since the end of World War II by utilising the LM and RALS-LM unit root tests that allow for endogenously determined structural breaks. We find that income inequality for Australia’s capital city—the Australain Capital Territoy—converges to a stable steady-state when we account for endogenously determined trend-breaks. The null hypothesis of a unit root is rejected when utilising the two-break unit root test for New South Wales, Northern Territory, Queensland, South Australia, Tasmania and Western Australia indicating that income inequalities in these states converge to a stable steady-state when accounting for multiple structural breaks. In contrast, the state of Victoria consistently shows evidence of divergence regardless of the number of endogenously determined structural breaks. Structural changes in income inequality across states and territories may be linked to the mining boom, the transition from manufacturing to a service-based economy, changes in government welfare, and favourable changes in tax policies and superannuation.

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Notes

  1. Kennedy et al. (2017) argue that the omission of female income earners may be quite significant since the female labour force in recent decades has been on the rise and attribute approximately one-quarter of dual income in Australian households (Kennedy et al. 2017).

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  2. For example in the build up to the peak in 1987, the lowest rate in the metal industry award for NSW was $256.80 in 1987 compared to the minimum wage of $659.90 in 2016 (Hamilton 2018).

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Authors and Affiliations

  1. Monash University, Melbourne, VIC, Australia

    Kris Ivanovski

  2. RMIT University, Melbourne, VIC, Australia

    Sefa Awaworyi Churchill

  3. Macquarie University, Sydney, NSW, Australia

    John Inekwe

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  1. Kris Ivanovski
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  2. Sefa Awaworyi Churchill
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  3. John Inekwe
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Correspondence to Sefa Awaworyi Churchill.

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Appendix

Appendix

See Figs. 1 and 2; Table 5.

Fig. 1
figure 1

Mean of Gini coefficient (geographic representation). Notes: darker (lighter) shades denote higher (lower) income inequality

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Fig. 2
figure 2

National, state and territory Gini coefficients (1942–2013). Notes: Gini coefficients based on taxation statistics sourced from Kennedy et al. (2017) for the period 1942–2013

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Table 5 Summary of ADF, LM and RALS-LM unit root tests
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Ivanovski, K., Awaworyi Churchill, S. & Inekwe, J. Convergence in Income Inequality Across Australian States and Territories. Soc Indic Res 148, 127–142 (2020). https://doi.org/10.1007/s11205-019-02201-0

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