Income Inequality Amongst N.Z. Workers in the 1980s: A Decomposition Analysis

Abstract

The degree of income inequality within the labour market shrank in the early 1980s and grew in the late 1980s. Three dimensions of interest in income inequality are work status, age and ethnicity. This paper decomposes an index of inequality to ascertain how much of the change in inequality can be attributed to shifts in labour force composition along the three aforementioned dimensions. Through this method we find that change in age and ethnic composition had little effect on aggregate income inequality and that aggregate change between 1981 and 1986 was driven by change within age/ethnic and work status groups. Change in work status (i.e. the decline in employment) was a major cause of aggregate inequality between 1986 and 1991. Aggregate change between 1986 and 1991 was also due to within-group increases in inequality and divergence of mean incomes among sub-group.