Working Paper: CEPR ID: DP13520
Authors: Laura Panza; Jeffrey G. Williamson
Abstract: Trends in Australian inequality across the twentieth century are now well documented and they closely replicate trends in every other advanced economy: from WWI to the 1970s, inequality fell steeply everywhere, and from the 1970s to the present, it rose just as steeply. Despite following a similar trajectory, Australia remained more egalitarian throughout. Why has it been exceptional and what are its origins? Our previous work has found plenty of evidence documenting a steep fall in Australian income and earnings inequality from 1820 to 1870 (Panza and Williamson 2019a).This paper answers two additional questions. First, what was the level of inequality around 1870 after the fall? While we cannot speak to income inequality in 1870, we do find that earnings inequality was much lower in Australia than in the United States, the United Kingdom, and presumably the rest of Europe. Second, we find that there was no rise in Australian earnings inequality over the half century 1870-1910, but rather a modest fall. These findings rely on the use of an array of primary sources – especially the underutilized government Blue Books reporting annual earnings of an impressive range of white collar occupations – as well as better known secondary sources reporting the earnings of manual workers and farm labor. These occupational (average) earnings data are merged with occupational employment data taken from the censuses to construct social tables for Australia’s 1870 earnings distribution. We do the same for postfederation 1910 Australia. This exercise establishes that the source of modern Australia’s relative egalitarianism is the middle third of the colonial nineteenth century. We also apply Goldin-Katz (2008) analysis to the half century 1870-1910 thus to identify the sources of slow skill demand and fast skill supply growth. Australia missed a rise up some Kuznets Curve before World War I, a rise so common in Europe and most of its offshoots.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Earnings inequality in Australia (J31) | Earnings inequality in the United States (D31) |
| Earnings inequality in Australia (J31) | Earnings inequality in the United Kingdom (D31) |
| Earnings inequality in Australia (J31) | Earnings inequality in Australia between 1870 and 1910 (D31) |
| Earnings inequality in New South Wales (J31) | Gini coefficient in New South Wales (D31) |
| Earnings inequality across all of Australia (D31) | Gini coefficient across all of Australia (D31) |
| Growth in the supply of skilled labor (J24) | Decline in Australian earnings inequality (D31) |
| Slower growth in the demand for skills (J24) | Decline in Australian earnings inequality (D31) |
| Policies favoring low-skilled manufacturing workers (J68) | Relative egalitarianism in Australia (D63) |
| Commitment to public education (H52) | Relative egalitarianism in Australia (D63) |