3 October 2000
Wages and Salaries
Gross National Product
For most people, the single most important
economic indicator of living standards is average real (after
adjustment for inflation) income and on this basis living standards
in Australia have been rising for several decades. Offsetting this
improvement, however, has been the fact that income is less
equitably distributed than it used to be and there is evidence that
increases in real income have slowed considerably over the past
decade. Another important economic indicator of living standards is
home affordability which, while better than it was at the beginning
of the 1990s, is significantly worse than its pre-1980s level.
Social indicators are similarly ambiguous when
it comes to assessing what has happened to living standards.
Leisure time (reduced working hours) is an important social
indicator and while people are enjoying more leisure now than they
were in the early part of the 20th century, the
available leisure time has fallen considerably over the past 20
years. Other social indicators such as health and education point
to a rise in living standards, while increased crime levels suggest
a trend in the opposite direction.
The term living standards can mean many
different things. From a narrow economic viewpoint it means the
average income in the community. In a broader sense it refers to
welfare or quality of life.(1) While there is no single
indicator that adequately measures living standards, an overview
can be formed by considering a range of
Two measures of income are used in this paper to
provide an economic perspective on living standards-wages and
salaries and gross national product. While home loan affordability
is related to income, it is included here as a separate economic
indicator because of the importance of home ownership to many
Australians. For a social perspective the indicators considered
include leisure (hours worked), health, education and crime.
All indicators cover at least a 20 year period,
but wherever possible, a longer time period than this is
Wages and Salaries
The most commonly used measure of wage and
salary income is average weekly earnings (AWE). There are many
different measures of AWE but the one used here is that which has
been available longest-male total earnings. It covers all
industries and occupations, full-time and part-time workers, adults
and juniors and includes overtime payments.(3) A
shortcoming with this measure, however, is that it is affected by
compositional change. For example, an increase in the proportion of
workers who are part-time will depress average earnings, even
assuming no change in individual earnings.
The movement in male total earnings from the
mid-1960s is shown in Figure 1. Earnings are expressed net of
income tax and in real (after adjustment for inflation) terms.
While real after tax earnings are considerably higher now than they
were at the beginning of the period, it is interesting to note that
earnings dipped significantly on two occasions-the latter half of
the 1970s and again in the latter half of the 1980s. Note also that
the increase in living standards as measured by this indicator has
slowed appreciably since about the mid-1970s. In the eight years to
1974-75 real after tax earnings rose by more than 30 per cent
compared with only a 10 per cent increase in the 25 years that
Several factors contribute to the slowdown in
earnings growth that has occurred since mid-1970. These include
higher unemployment rates (thus easing pressure on wages), higher
taxation rates and increased participation in the part-time
workforce. The latter has acted to depress average earnings by
altering the composition of the workforce.
Sources: Average Weekly Earnings, (ABS
6302.0); Consumer Price Index, (ABS 6401.0); Australian
Gross National Product
Another measure of income is Gross National
Product (GNP). It covers the income of wage and salary earners as
well as that of social security, workers' compensation and
superannuation recipients, plus interest, rent, profits and
dividends. It also includes net income received from overseas. GNP
is therefore a measure of the level of income that accrues to
Australians and is a better indicator of living standards than
the more familiar gross domestic product which measures the level
of income generated in Australia.(4)
As GNP rises with population and is affected by
fluctuations in price levels a measure of real GNP per capita is
used to show changes in individual income levels after adjustment
for inflation. Figure 2 clearly shows that apart from a noticeable
decline in the 1982-83 and 1991-92 recessions, living standards as
measured by real GNP per capita have risen steadily over the past
Source: National Income, Expenditure and
Product, (ABS 5206.0).
It is interesting to note that over the past few
decades, GNP per capita has risen faster than average earnings,
suggesting that profits and increased employment have been the main
factors driving growth.
A problem with both measures of income noted
above is that they take no account of distributional effects. It is
questionable whether a rise in average income represents an
increase in living standards if that income is concentrated in the
hands of fewer people. It is therefore necessary to have some idea
of how evenly that income is distributed.
A generally accepted measure of income
dispersion is the gini coefficient. While not being concerned with
its technical aspects, the gini coefficient is expressed as a range
in which a value of 0 means that everyone has the same income
(absolute equality) and a value of 1 means that one member of a
group has all the income (absolute inequality). The table below
shows the gini coefficient as measured for persons from 1915 to
1986 and as measured for income units (a group of persons whose
command over income is shared) from 1986 to 1997-98. Despite the
break in the series(5), it is clear there has been an
increase in income equality over the period 1933 to 1986 and an
decrease in income equality after 1986.(6)
Table 1. Income Distribution and Gini
Source: Data for persons from Industry
Commission, Assessing Australia's Productivity Performance
September 1997; for income units from Income Distribution,
Australia , (ABS 6523.0).
The usually accepted indicator for international
comparisons of living standards is gross domestic product per
capita converted to $US using purchasing power parities (PPPs).
PPPs are the rates of currency conversion that eliminate price
differences between countries. When converted by means of PPPs, the
expenditure on GDP for different countries reflects only the volume
of goods and services of different countries.
Of the 29 member countries that comprise the
OECD, Australia was ranked in 1998 as having the 8th highest
standard of living. This placed Australia behind the USA and Canada
but ahead of Japan and every European country except Denmark,
Iceland, Luxembourg, Norway and Switzerland.
Figure 3 compares Australia's GDP per capita
with that of the average for all OECD countries. It shows that
relative to the OECD average, Australia's living standards trended
downward during the 1970s, fell sharply in the late 1980s and early
1990s but improved rapidly thereafter.
Source: OECD, National Accounts Main
Aggregates 1960-1997, Vol 1, 1999.
international indicator of living standards is the human
development index compiled by the United Nations. This is a
composite index which combines GDP per capita (PPP US$) with two
other indicators: longevity, as measured by life expectancy at
birth; and educational attainment, as measured by a combination of
the adult literacy rate and the combined primary, secondary and
tertiary enrolment ratio. In 1998, Australia had the third highest
level of human development in the world, behind Canada and Norway
and equal with the USA.(7)
While related to income, home loan affordability
is included here as a separate economic indicator because of the
priority that Australians attach to owning their own home.
The Real Estate Institute of Australia has
constructed a measure of home affordability that looks at the
relationship between median weekly family income and average home
loan repayments on new loans. This is shown below where an increase
in the indicator means an improvement in affordability. Over the
decade of the 1980s home affordability deteriorated markedly in
Australia, mainly in response to the rising interest rates of this
period. Home affordability followed a fairly erratic path after
1990, but while it is better today than it was in 1990 it still
compares unfavourably with the early 1980s.
Source: Real Estate
Institute of Australia and Citibank, Home Loan
Increases in leisure are reflected by changes in
average hours worked. A decline in hours worked that isn't
associated with a fall in earnings represents an improvement in
one's quality of life.
Measured on this basis, the quality of life
improved significantly during the first half of the 20th
century when the average hours worked by full-time employed males
fell from 49 to 40 hours per week. The average remained at 40 hours
till about 1980, then started to creep upwards and is now around 44
hours per week. In other words, full-time employed males are
working the same average hours today as their counterparts did back
It is interesting to note that in addition to
working longer average hours, the last couple of decades have seen
a marked increase in the proportion of persons working very long
hours (49+ per week). In 1980 just 21 per cent of all full-timers
(male and female) were working very long hours; by 2000 this
proportion had risen to 33 per cent. For many white-collar workers,
these additional hours are being worked as unpaid
Sources: The Labour
Force Australia: Historical Summary (ABS 6204.0); The Labour Force
Australia, (ABS 6203.0) .
Life expectancy provides an overall indicator of
improvements in the standard of health. On this basis, Australians
have experienced a very substantial rise in their standard of
health with an increase in life expectancy since 1947 of 9.8 years
for males and 10.9 years for females. Increases in life expectancy
have been sustained even in recent years, rising since 1990 by 2.0
years for males and 1.4 years for females.
Sources: Australian Demographic
Statistics (ABS 3101.0); Deaths (ABS 3302.0)
A better education, by improving job prospects
and increasing earning capacity, is often seen as the pathway to a
better quality of life. Young Australians today are participating
in education to a greater extent than ever before with more than
half of all 15-19 year olds in education and a Year 12 retention
rate of more than 70 per cent. This compares with quarter of a
century ago when the 15-19 year old participation rate was 36 per
cent and the Year 12 retention rate was only 34 per cent. These
improvements have in turn increased the proportion of the
population with a degree or higher qualification, rising from 3 per
cent of all persons aged 15 and over in 1976 to more than 10 per
Levels of crime in society affect feelings of
security and therefore quality of life. During the past couple of
decades the number of crimes reported to police in Australia has
risen dramatically. Break-ins have increased from 880 per thousand
of population in 1977-78 to 2125 in 1997-98. Assaults over the same
period have risen from 90 to 689 per thousand of population while
robberies have risen from 23 to 113 per thousand of population.
Based on feelings of security therefore, Australia's standard of
living has declined considerably over the past 20 years.
Source: Australian Institute of Criminology.
If measured in terms of average income then
Australia's standard of living has been improving over several
decades. Offsetting this, however, is the fact that Australia's
income is less equitably distributed than it used to be. Moreover,
there is evidence, based on average weekly earnings data, that
improvements in our standard of living have slowed considerably
over the last decade.
If social indicators are the measure of living
standards in Australia then the outcome is similarly ambiguous.
While we have more leisure time now than at the beginning of the
20th century, the amount of available leisure time has
decreased over the last 20 years. Health standards and education
have undoubtedly improved but feelings of security have
While several other factors could have been
discussed in this paper (e.g. environmental factors) it is clear
that any judgement on whether living standards have improved or
deteriorated over the past 20 years is very much dependent on the
relative importance that individuals attach to the indicators
- Robert Dippelsman, 'Living Standards', Current Issues
Paper No. 5, Department of the Parliamentary Library, 1989-90,
- Many of the indicators discussed in this paper also appear in
Industry Commission, Assessing Australia's Productivity
Performance, September 1997, pp. 117-123.
- Robert Dippelsman, op. cit.
- Since no one series covers whole of period from 1915 to
present, data has been presented for 2 separate series. Despite
differences in absolute size of numbers, the significance of each
series lies in whether the gini coefficient has been increasing or
decreasing over time.
- For a more detailed discussion of income distribution see Geoff
Winter, 'Are Incomes Becoming
More Unequal? Are Real Incomes Increasing?', Current Issues
Brief No. 15, Department of the Parliamentary Library,
- United Nations, Human Development Report 2000, p. 157.
- Australian Centre for Industrial Research and Training,
Australia at Work, 1999, p.104