3  Recent Trends in Incomes

In light of the descriptive statistics presented in the previous section, we now turn to a graphical description of the relative trends in alternative summary statistics of the level and dispersion of individual and household incomes.  We focus first on the income trends of working-age individuals’ annualised earnings and total incomes, and then consider trends in household level earnings and incomes.  For each of the graphical descriptions, we show the trend over the 8 years of the HLFS-IS data 1997-2004 and, in order to emphasise the relative change between our focus years (1998 and 2004), we normalise all series to an index value of 100 in 1998.

3.1  Working-age Individuals’ Earnings and Income

Figure 1 describes various trends in individual earnings and incomes over the sample period.  All trends are based on unconditional earnings and incomes – i.e. including zero and negative values.  First, Figure 1a shows the trends in the mean and median individual earnings, together with the Gini coefficient as a summary measure of inequality.  This figure shows mean individual earnings were flat between 1997 and 1998 and then increased steadily until 2004, increasing 16 percent between 1998 and 2004 (as seen in Table 1).  By comparison, median earnings fell about 2 percent in 1998 and then increased steadily, and somewhat more strongly than mean earnings, over the remainder of the period, resulting in a 23 percent increase between 1998 and 2004.  In contrast to the steady cumulative increases in the level of earnings described by the mean and median, earnings dispersion as measured by the Gini coefficient fell by 4-5 percent over the period.  The relative trends in the mean, median and Gini coefficient of individuals’ earnings, in combination with the patterns of characteristics’ changes observed in Table 1, are suggestive of the increase in employment causing a relatively larger increase in earnings in the low to middle range of the distribution, than higher up.  We return to this issue more formally later in the analysis.

Figure 1b shows the corresponding trends in the mean, median and Gini coefficients of individuals total (gross, i.e. pre-tax) income.  Although these trends are similar to those observed for earnings in Figure 1a, two points are worth noting.  First, the trends in mean and median income were very similar, and increased less than for earnings: mean incomes increased 12 percent versus 16 percent for earnings, while median income increased 13 percent versus 23 percent for earnings.  This largely reflects the mitigating effect of the loss of benefit income associated with the increase in employment and earnings.  Second, in contrast to the small but steady drop in the Gini coefficient on earnings, the Gini coefficient on individual income shows almost no change over the sample period.

Figure 1c-e describe further the trends in individuals’ income.  Figure 1c shows the trends in the mean, median and Gini coefficient on individuals’ post-tax income, using a crude estimate of post-tax income derived simply by applying the income tax schedule to individuals’ reported annualised total income.[15]  The trends here are broadly similar to those in b.  The lower increase in mean compared to median post-tax income between 1998 and 2004 (about 10 versus 13 percent) is partly due to the introduction of the 39 percent higher marginal tax rate for incomes over $60,000 in 2000 – e.g. all else equal, the introduction of the 39% marginal tax rate explains about one-third of the difference between the mean and median growth over this period.  This effect also contributes to the slight fall (-2 percent) in the Gini coefficient over the period.

Figure 1d describes the trends in alternative percentiles (25^th, 75^th, and 90^th, together with the median) of individuals’ annualised (gross) income.[16]  In contrast to expectations, based partly on the trends in the mean and median shown in Figure 1b, this figure does not show a clear picture of differential relative gains across the income distribution.  For example, the relative gain in median incomes was larger than the other 3 percentiles, but only dominated gains at the 75^th percentile after 2000.  Also, while gains at the median were stronger than at the 75^th and 90^th percentiles, the net gain over the period at the 90^th percentile was the same as at the 25^th percentile.[17]

Finally, Figure 1e describes the trends in mean incomes for each of the four (prioritised) ethnic groups, Maori, Pacific Island, Pakeha, and “Other” ethnicities.  This figure shows some quite large year-to-year variations in average incomes for some of the groups, particularly the Maori and Pacific Island groups.  However, the net increases between 1998 and 2004 for the Pakeha, Maori and Pacific Island ethnic groups are quite similar (around 12-14 percent), while the average incomes of the “Other” group appears to be lagging since 2002 and increased about 8 percent between 1998 and 2004.

3.2  Working-age Individuals’ Equivalised Incomes

We now turn our focus to trends in individuals’ equivalised household earnings and incomes.  Figure 2 describe trends in equivalised earnings and income measures, following an analogous pattern to Figure 1 for individuals.  For this analysis, we aggregate the earnings and incomes of all (i.e. not just working-age) individuals in the household.  We begin by describing the mean, median and Gini coefficient trends for equivalised earnings, presented in Figure 2a.  As was the case for individual earnings, there was a small drop (-2 to -3 percent) in mean and median equivalised earnings in 1998.  Between 1998 and 2004, both the mean and median increased steadily and, in contrast to individual earnings, very closely together, resulting in 15-16 percent increases over the period.  Finally, and similarly to individual earnings, the Gini coefficient fell slowly but steadily by 4 percent between 1998 and 2004.

Figure 2b presents the corresponding trends in equivalised household gross incomes.  Mean and median incomes increased by 11 and 13 percent respectively between 1998 and 2004, while the Gini coefficient also increased slightly (2-3 percent).  Similar, although slightly muted, trends are evident for equivalised household post-tax income shown in Figure 2c: median post-tax income increased 11 percent, mean income increased 9 percent, and the Gini coefficient was unchanged between 1998 and 2004. 

We compare trends in the 10^th, 25^th, 50^th (median), 75^th and 90th percentiles of equivalised household (gross) incomes in Figure 2d.  Again, this shows the income growth was non-monotonic across the distribution, and appears to have been slightly stronger in the middle of the distribution than in the tails.  In particular, the growth at the 10^th percentile point was relatively slow, 3 percent between 1998 and 2004 compared to 13 percent median growth.

Finally, Figure 2e describes the trends in mean equivalised household incomes for the different ethnic groups of the working-age population.  The trends are very similar to those for individual incomes in Figure 1e, except for Pacific Islanders: in contrast to mean individual incomes which showed the smallest increase among the ethnic groups of 8 percent, Pacific Islanders’ mean equivalised household incomes increase more between 1998 and 2004 (15 percent) than that of other ethnicities.

In summary, the trends in earnings and income levels and dispersion changes suggest generally steady increases in incomes with comparatively little change in the dispersion.  This is broadly true of both individual and equivalised household earnings and incomes.  The main exception to this summary is that individual earnings appear to have increased significantly more in the low-middle range of the distribution.  We suspect that this may be closely correlated with how increases in employment have been distributed across individuals and households.