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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Measurement of income distribution

The ABS is the primary body collecting statistics on incomes and the way are distributed in the economy.  It collects statistics via the Survey of Income and Housing (SIH), focusing on the income of persons aged 15 years and over resident in private dwellings throughout Australia.  Approximately 18,000 individuals are questioned from a cross section of Australian households and the information is then 'extrapolated' to reflect the position that is likely to exist for Australia.   (See ABS Catalogue 6523.0 - Household Income and Income Distribution, Australia)

From the surveys, the ABS determines household incomes and places them in a ranking from lowest earning households to highest earning households.  The incomes are after tax and adjusted for household size and composition.  This results in an 'equivalised income'.  In simple terms, this involves the ABS adjusting the household incomes to take account of the number of people in the household that are relying on the income(s) earned.  Accordingly, if a household has two or more persons relying on one income, the equivalised income for that household will be lower than the equivalised income for a one person household.

Once the income groups are ordered from lowest to highest, they are typically placed into five groups (quintiles) or ten groups (deciles), ranked from the lowest income earning quintile/decile to the highest.  The table below shows the percentage shares earned by each quintile in the economy, highlighting the large degree of inequity existing in the distribution of income in Australia, with little change in the relative income shares over time.  

These relative income shares are also used to derive the Lorenz curve.  However, before examining this, we will examine some other types of income referred to by government agencies and economists.

Other types of income

Other types of 'incomes' referred to by economists include market (or private) income, gross income, disposable income, social wage income and final income.  Analysis of the relationship of these income types should reveal that inequity lessens (or equity improves) as we move from private income to final income.  It occurs as a result of government policy initiatives that have been designed to assist in the achievement of the government's goal to improve equity in the distribution of income.  This will be further examined under the topic of budgetary policy.

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