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You have just learned that there are a number of different types of income. When measuring the way in which income is distributed in the economy, it is very important that you are aware of which type you are examining. Certain income classifications will appear far more inequitable than others.

In general terms, the distribution of income is assessed via an income survey. This can be achieved through the use of tax returns; everyone who has had any income tax deducted from their income must lodge a tax return with the Australian Taxation Office, and as a result a very large database is created. From this, the Australian Bureau of Statistics is able to assess income distribution by age, State, gender and even by the suburb in which you live.

Once the survey has been completed, the results can be modelled with a Lorenz Curve. This is a graph which shows the way in which income is shared amongst the members of the population.


On the horizontal axis we measure the percentage of the population. On the vertical axis we measure the percentage of the total income that has been received by that population group. You can see that the line is curved – a straight line has been added, and that line represents the line of absolute equality. This is called the egalitarian line. It will be used to help us to calculate another statistic soon.

We can see on this graph that the “poorest” 20% of the population receives about 8% of the total income that is available. At the other extreme, the “richest” 20% of the population receives significantly more than 20% of the available income. This is a sign that the population modelled above has a relatively inequitable distribution of income.

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