Income inequality

Relevance

The degree of income inequality is often regarded as an important aspect of the fairness of the society we live in. A high level of income inequality may also be detrimental to the level of social connectedness across society.

Current level and trends

In 2008, the equivalised disposable income of a household at the 80th percentile was 2.6 times larger than that of a household at the 20th percentile. This was about the same as the ratio in 2007. In 1988, the ratio was 2.2. Income inequality rose between 1988 and 1991, briefly plateaued, then rose again from 1994 to 2004.

Most of the observed increase in income inequality between 1988 and 2004 was due to a larger overall rise in incomes for those in the top 20 per cent of incomes – around a quarter once adjustments for inflation are made. In that period, incomes for those in the bottom 20 per cent of incomes decreased a little. Incomes for the middle 60 per cent climbed more overall for those closer to the top 20 per cent than for those closer to the bottom 20 per cent.

From 2004 to 2008, incomes for households in the low to middle income range rose more quickly than incomes for higher income households. Incomes for the lower 4 deciles grew by 13–17 per cent, while those above the median typically grew by around 8–9 per cent. This was the only period in the last 25 years when the incomes of low to middle income households grew more quickly than those of households above the median.⁶⁴

Figure EC2.1 Ratio of the 80th percentile of equivalised disposable household income to the 20th percentile of equivalised disposable household income, 1988–2008

Source: Derived from Statistics New Zealand’s Household Economic Survey (1988–2008), by the Ministry of Social Development
Notes: (1) Between 1998 and 2004, the Household Economic Survey was conducted on a three-yearly basis, rather than annually (2) This measure adjusts for household size and composition

International comparison

Comparisons with other OECD countries are available using a different measure, the Gini coefficient.⁶⁵ Gini coefficients measure income inequality, with a score of 100 indicating perfect inequality and a score of 0 indicating perfect equality. The most recent OECD comparison (from 2004) gives New Zealand a score of 34, indicating higher inequality than the OECD median of 31 and a ranking of 23rd equal out of 30 countries. New Zealand’s Gini score was below that of the United States (38), very close to those of the United Kingdom (34) and Ireland (33), a little above Canada and Japan (32), and a little further above that of Australia (30). Denmark and Sweden had the lowest income inequality with Gini scores of 23.⁶⁶ The 2008 Gini score for New Zealand was 34 (33 in 2007).

» View technical details about the income inequality indicator