Rich get richer while poor get … richer

One of the striking results of the survey of millennials released by the CIS last week was that 62% of respondents agreed with the proposition that “ordinary workers in Australia are worse off now than they were forty years ago”. This is so far from the statistical truth that one must wonder what notion of “worse off” those 62% had in mind.

Average weekly earnings of adult full-time workers is not available as a consistent series over 40 years, but we can go back 36 years. Over that period, average weekly earnings rose 45% in real (inflation-adjusted) terms.

A broader measure of people’s living standards is represented by household disposable income per capita, which is available for 40 years. On this measure, there was an increase in real terms of 65% from March 1978 to March 2018. This is a remarkable advance in households’ economic well-being.

The comeback from doubters might be that those figures only measure the average experience and that all the gains have gone to the better-off and none to the worse-off or to ordinary workers. By chance, last week the Australian Bureau of Statistics released new data that shed light on this distributional issue.

Once again, we don’t have consistent 40-year data, but we can look at what happened from 2003-04 to 2015-16. In those 12 years, real household disposable income increased on average by 45%. All household quintiles experienced increases above 40%, but the largest (61%) went to the poorest quintile while for the second poorest the increase was 49%. It is also true that the richest quintile gained 56%, but these figures surely demonstrate that while the rich got richer, so did the less well-off segments of the population.

There is always room for debate about whether policies need to be tilted more in favour of the less well-off. But it is helpful to start from a shared knowledge of the facts.