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Gross Domestic Product (GDP) | Income Inequality | Child Poverty and Living Standards |
Unemployment Rates | Children Reliant on Benefit Recipients | Appendices

Income Inequality

Introduction

There has been much debate in recent years regarding the influence of income inequalities on population health. While it is widely acknowledged that poverty plays a crucial role in shaping health disparities, authors such as Wilkinson and Marmot [1] argue that income inequality itself also plays a role, via its links to psychosocial pathways associated with relative disadvantage. They cite the Whitehall studies of British civil servants, where mortality increased in a stepwise manner as relative socioeconomic status decreased, with social gradients being evident even amongst those who were not poor. In addition, they note that while health inequalities exist within societies, there is little association between average income (GDP per capita) and life expectancy across rich countries. Rather, there appears to be a strong correlation between income inequality and mortality. In Wilkinson and Marmot's view, such associations suggest that it is not absolute material deprivation which shapes health at the population level, but rather the effects such inequalities have on psychosocial outcomes such as the degree of control over work, anxiety, depression and social affiliations. In support of this argument, they cite a number of studies which demonstrate social gradients in the lack of control over work, low variety at work and a severe lack of social support, with animal experiments also suggesting that low social status, via its effects on neuroendocrine pathways, leads to atherosclerosis, unfavourable lipid profiles, central obesity, insulin resistance and raised basal cortisol [1].

Others such as Lynch [2] however, would argue that it is not the psychological effects of income inequality which play the greatest role, but rather the lack of material resources (e.g. differentials in access to adequate nutrition, housing and healthcare), coupled with a systematic underinvestment in human, physical, health and social infrastructure (e.g. the types and quality of education, health services, transportation, recreational facilities and public housing available). In Lynch's view, the combination of these negative exposures is particularly important for the health of the most disadvantaged (who have the fewest individual resources), and that in this context, the associations between income inequality and health are not inevitable, but rather are contingent on the level of public infrastructure and resources available. While debate on the precise pathways continues, both sides of the income inequality argument agree, that reducing income inequality by raising incomes for the most disadvantaged, will reduce inequalities and improve population health [3].

The following indicator explores income inequalities in New Zealand since 1984 using two different measures, the P80/P20 Ratio and the Gini Coefficient.

New Zealand Trends

Income Inequality: P80/P20 Ratio
In New Zealand during 1984-2008, income inequality as measured by the P80/P20 ratio, was higher after adjusting for housing costs than prior to this adjustment. The most rapid rises in income inequality occurred during 1988-1992. While income inequality also rose during 1994-2004, the rate of increase was slower. During 2004-2008, the P80/P20 ratio fell, a decline in income inequality which Perry attributes largely to the Working for Families package [4]. The rise in after housing costs income inequality during 2007-2008 however, Perry attributes to the rising proportion of low-income households with high housing costs [4] (Figure 1).

Income Inequality: Gini Coefficient
In New Zealand during 1984-2008, income inequality as measured by the Gini Coefficient, was also higher after adjusting for housing costs than prior to this adjustment. The most rapid rises in income inequality during this period also occurred between the late 1980s and early 1990s. Using both the Before and After Housing Cost measures, the Gini Coefficient declined between 2001-2007, a decline which Perry again attributes to the impact of the Working for Families Package. Perry notes however, that another year's data is required, before it is possible to determine whether the rise in income inequality seen between 2007-2008 is real, or just a statistical blip [4] (Figure 2).

Summary

In New Zealand during 1984-2008 income inequality, as measured by the P80/P20 ratio and Gini coefficient, was higher after adjusting for housing costs than prior to this adjustment. The most rapid rises in income inequality occurred between the late 1980s and early 1990s. During the early-mid 2000s however, income inequality declined, a change Perry attributes largely to the Working for Families package. Rises in income inequality were again evident between 2007-2008, with Perry attributing some of this increase to the rising proportion of low-income households with high housing costs [4].

Figure 1. Income Inequality in New Zealand: P80/P20 Ratio for the 1984-2008 HES Years

Source: Perry 2009 [4], derived from Statistics NZ's Household Economic Survey (1984-2008)

 

Figure 2. Income Inequality in New Zealand: Gini Coefficient for the 1984-2008 HES Years

Source: Perry 2009[4] , derived from Statistics NZ's Household Economic Survey (HES) 1984-2008

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References

1. Marmot, M. and R. Wilkinson, Psychosocial and Material Pathways in the Relation Between Income and Health: A Response to Lynch et al. British Medical Journal, 2001. 322(19 May): p. 1233-1236.

2. Lynch, J., et al., Income inequality and mortality: Importance to health of individual income, psychosocial environment or material conditions. British Medical Journal, 2000. 320(29 April): p. 1200-1204.

3. Lynch, J., et al., Is Income Inequality a Determinant of Population Health? Part 1. A Systematic Review. The Milbank Quarterly, 2004. 82(1): p. 5-99.

4. Perry, B., Household Incomes in New Zealand: Trends in Indicators of Inequality and Hardship 1982 to 2008. 2009, Ministry of Social Development: Wellington. p. 1-167.

5. Wikipedia. Gini Coefficient. 2009 [cited 2009 September]; Available here