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Distribution of the economic gains of the 1990s

Staff research paper

This paper by Dean Parham, Paula Barnes, Paul Roberts and Sharon Kennett was released on 15 November 2000. The paper examines the effect of rapid productivity growth in the 1990s on firstly the growth of average incomes in Australia, and secondly the distribution of income. It also looks at how the changes in average income and income distribution relate to trends in living standards.

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This Staff Research Paper examines the effects of the surge in Australia's productivity growth in the 1990s on the growth and distribution of incomes in Australia. It focuses in particular on the distribution of income between labour (wages and salaries) and capital (profits).

Contrary to some perceptions, it finds that the gains of the 1990s have been evenly distributed between labour and capital. Labour has gained through growth in real wages and employment. The owners of capital have gained through growth in average rates of profit.

The study also found that much of the productivity growth in high-performing industries has been passed on in the form of lower prices. This is particularly true in the 1990s, suggesting that increased competitive pressures have been at work and have limited the scope for wage and profit growth differentials to emerge across industries.

The paper is part of a stream of ongoing work at the Productivity Commission on productivity growth, its causes and implications for the living standards of Australians.

Background information

02 6240 3330

Cover, Copyright, Contents, Preface, Abbreviations and explanations, Key messages

Contributions to growth in average income
Productivity growth and the distribution of income gains to labour and capital
Other dimensions of income distribution
Concluding remarks

1 The context for this study
1.1 Objectives and scope of the paper
1.2 A brief review of the nature of other studies

2 Recent trends in living standards
2.1 Approaches to monitoring living standards
2.2 A review of available indicators
2.3 Assessment

3 Contributions to improvements in average income
3.1 Phases of growth
3.2 Contributions to growth in average incomes
3.3 Assessment

4 Productivity and the distribution of labour and capital income
4.1 Factor income shares
4.2 Productivity and rates of pay and profit
4.3 The links between wages, productivity and employment
4.4 An industry perspective
4.5 Assessment

5 Some remaining issues
5.1 Trends in earnings distribution
5.2 Trends in distribution of capital income
5.3 The government sector
5.4 Trends in rural and urban distribution
5.5 Assessment

A Trends in selected indicators of living standards
A.1 Income
A.2 Wealth
A.3 Consumption
A.4 Working hours
A.5 Housing
A.6 Health
A.7 Education
A.8 Environment

B Statistical decomposition of growth in average income
B.1 Phases of growth
B.2 The decomposition methodology
B.3 Implementation of the decomposition

C Sectoral productivity growth and its distribution
C.1 Sectoral productivity estimates
C.2 Distribution of factor income
C.3 Productivity, wages, profits and prices

D Selected distributional trends
D.1 Trends in earnings distribution
D.2 Trends in distribution of capital income
D.3 The government sector
D.4 Distribution between rural and urban Australia