First the evidence. We need to build an understanding of the principal dimensions of economic inequality in Australia. Looking at the distribution of income is the obvious starting point. Income is the most obvious indicator of the standard of living that people experience, so using it as the primary measure of economic inequality needs little supporting argument. What is important to note is that income can derive from various activities – from waged work, interest payments on savings, dividends on shares, rents on property or government transfer payments, for example. It is the aggregation of all such current income flows that is the prime determinant of a person's economic wellbeing. It is the unevenness in the distribution of these incomes that is the principal indicator of the degree of inequality within the whole society.

This chapter looks at recent evidence on the extent of income inequality. It examines the relationship between the incomes derived from labour and those derived from capital, and the variations in wage rates between occupations, before turning to look at perhaps the most spectacular income recipients, the chief executive officers (CEOs) of large corporations. It then investigates how overall income inequality can be assessed, how it has changed over the last couple of decades and how it compares internationally. In this way we construct a clear picture of who gets what.

Capital versus labour

The distribution of national income as wages, profits and other types of payment is sometimes called ‘the functional distribution of income’.