The ability of a person to change their material circumstances – to escape from poverty, or to access opportunities to improve their situation – is one lens through which to assess the prevalence of inequality in society.
In a report released on Thursday, the Productivity Commission has looked at this concept of economic mobility in three different ways – how it changes over the course of a person’s lifetime, how shifts occur across generations, and how likely people are to escape poverty – to give an insight into how much of a “fair go” Australians really have. Here are some key things we learned from it.
Most people’s incomes go up and down over their lifetime, but the richest and poorest are more likely to stay that way
Most Australians will move through different income brackets throughout their lives, with 93% of us spending time in at least three different income deciles in our working lives between 2001 and 2022, the commission found. That’s quite a lot of movement. But things are “stickier” at the top and bottom for income (how much money you earn), especially so when you take into account wealth (the value of your assets).
Fifteen per cent of people with parents in the bottom income decile stayed there, the commission found, and just 6% of them ended up in the top decile. Meanwhile, 7% of those who started in the top income decile ended up at the bottom, but 20% of them maintained their high incomes.
When you take wealth into account, though, people at either end of the income distribution scale are most likely to get stuck there. Thirty-two per cent of people in the top two wealth deciles in 2001 were there 20 years later, and of those in the bottom two deciles, 42% remained.
Losing your job decreases your income by around 20% and it’s unlikely to fully recover
Job losses are not experienced equally, and the average 20% decrease in income for the first year out of work hits harder for those on a low income than it does for people with more assets at their disposal. People on low incomes are also more vulnerable to losing their jobs.
Most people’s income does recover somewhat in the following years, but the commission found that five years later people’s incomes still averaged 10% lower than they were before they lost their job.
Older people are more likely to experience larger decreases in income after a job loss than younger people.
Separating from a long-term partner decreases household income for women – but not men
Women experience a significant decrease in their disposable income when they split from a long-term partner, while men see their incomes increase, the commission found. They considered this to be a likely consequence of women bearing a disproportionately high burden of caring responsibilities compared with men.
While women’s household income does appear to recover after the separation, it generally takes about four to five years to do so.
Getting sick is bad for you, and also for your wallet
“Health shocks” have a huge and ongoing negative effect on a person’s income, the commission found, but how financially bad they are depends on the kind of health issue you are going through.
An illness or personal injury is likely to cut your income by 6% in the year after the incident, or by 4% if it’s a long-term health condition. But the negative effect worsens as time goes on – and people who are already lower down the socioeconomic scale fare worse.
Those in the bottom half of the income distribution scale see an average 21% reduction in income five years on from the health shock, whereas it is about a 5% decline for the top half of the population.
If you were born after 1990, you might not earn more than your parents did
The commission found that 67% of people born between 1976 and 1982 – that’s late generation X and early millennials – earned higher individual incomes than their (baby boomer) parents did, which is a pattern that went on for a long time in the postwar era. But that appears to be changing.
The commission also found that people born in the 1990s (late millennials, early gen Z) have experienced almost no growth in their incomes between the ages of 25-30 compared with other generations, meaning younger generations’ incomes may be the first to start going backwards overall.
