Andrew Leigh

TRANSCRIPT – ABC702 WITH RICHARD GLOVER
Andrew Leigh MP
Parliamentary Secretary to the Prime Minister
Member for Fraser
6 May 2013

TOPICS                                 Inequality, Australian egalitarianism

Richard Glover:                 How much do you have to earn to be in the top 10% of society? What about the top 1%? What about the top 0.1%? How much do you have to earn to be in that elevated crowd, what do you recon? For instance, the top 1%, how much do you think you’d have to earn each year to be kind of 1 in 100 type bread winner in this country? The numbers have been crunched by Andrew Leigh, he’s now a Labor MP but he was a professor of economics at the Australian National University and these numbers grew out of the research that he did there for a forth coming book Battlers and Billionaires and Andrew Leigh joins us on the line, good afternoon.

Andrew Leigh: Good afternoon Richard

Richard Glover:                 Now, before we get into that matter of you know, how much you do have to earn to be in the top 1% of the top 10%, your interest in this has been to look at inequality and whether it’s grown or not in Australia.

Andrew Leigh: Yes, that’s right Richard. I regard inequality as being sort of an important part in the Australian national story, egalitarianism sort of deep in the Australian legend whether that’s through the work of Paterson or Lawson or whether through the egalitarianism of calling one-another ‘mate’, rather than using the term ‘sir’, so Battlers and Billionaires is about telling that national story. And there’s obviously a bit of number crunching of the kind that you’ve talked about in your intro.

Richard Glover:                 Okay people might have the sense that we’re less equal then we ever have been, that’s not true though, back in the 1950s we were perhaps at our most un-equal.

Andrew Leigh: That’s right, well there’s this spike in the early 1950s in the Korean war wool boom, that’s a sort of one-off ping in inequality, but then if you go right back to the 1910s - 1920s that’s a more unequal time than today, but then we saw a drop in inequality from the 1910s to the late 1970s. Then the last three decades has been the opposite direction; a widening of the gap between rich and poor.

Richard Glover:                 Can we go back to the 1910s for a moment, what’s society look like to make it so un-equal?

Andrew Leigh: Well one of the things about the 1910s is you’ve got pretty unequal land holding, so that comes out of the early land allocation process of the 18^th century, as well as the squatters taking over large tracks of land for grazing. So the big gaps from that period are really between the landed and the rest whereas now the big gaps are between the highly paid and the rest. It’s sort of a labour market gap that’s opened up now.

Richard Glover:                 And In the 1950s, you mentioned the war boom, I mean we all know that the war was fought in a very cold place and that did create a good market for wool for a while in order to clothe all those soldiers, presumably the beneficiaries were mostly farmers.

Andrew Leigh: That’s absolutely right, so if you at those earning over £20,000 in that year, 90% are farmers. It’s an astonishing shock and really it’s driven by the fact that you can’t increase wool supply in a single year; sheep take a couple of years to breed and so this massive demand from the US military just drove the price of wool through the roof and Australia’s farmers are the beneficiaries.

Richard Glover:                 Now if you drive around the Australian country side and have a look at country houses, you can sometimes see, with an eagle eye, the 1950s wing and you can tell that it was built in that period with the money that came from the Korean war.

Andrew Leigh: Yes, astonishing payouts and one of the things they say of that era, was that the purchasing processes of wool meant that certain farmers had a bit of that income spread over the coming decade and so there’s a lot of upgrading of farm machinery in the 1950s as a result of that incredible wool boom.

Richard Glover:                 Now in more recent years how have we travelled, in you know say the last 10 or 20 years?

Andrew Leigh: So if you take the top 1% share, the richest 1/100^th of Australian adults, that’s roughly doubled since 1980. Back in 1980, they had 5% of income, 5 times their proportionate share, and now they’re up to 9% of income - so a significant increase. There was a little blip down in the global financial crisis but the top 1% share has begun increasing again over recent years.

Richard Glover:                                 Okay so 1981 was when we were at our most equal?

Andrew Leigh: That’s right, under the prime ministership of Malcolm Fraser the Australian top 1% share was at its lowest, and it steadily grew right through the Hawke, the Keating, the Howard era.

Richard Glover:                 It’s interesting isn’t it? People associated with a conservative government that would help out the rich but not so.

Andrew Leigh: Well it’s a lot of the changes aren’t policy changes, they’re technology: so the advent of computers for example that’s great if you’re a lawyer, not so good if you’re a typist. Your younger listeners probably don’t even recall that there was once an occupation called typists, but the advent of computers was pretty tough on that sector.

Richard Glover:                                 So information technology has actually led to more inequality?

Andrew Leigh: That’s right. Technology typically benefits those with higher levels of education and so one way of thinking about inequality is a race between education and technology. If we increase education fast then that can have an equalising effect, but if technology gets away from education then it has an unequal effect.

Richard Glover:                 And I guess we’re ling in a time now that, I mean people say that you know it’s very hard, if you’re unskilled it is very hard to get a job, the idea that you can get a good job just using your muscle used to be quite easy in maybe in 1970, not so good anymore.

Andrew Leigh: Absolutely right. So if you were an inarticulate bloke, who didn’t finish high school, then actually in the early `60s, if you were good with your hands there were a lot of options. Now there are not many options around and those options that exist Richard, tend to have fairly flat earnings. So if you take the earnings of for example a cleaner or a security guard, they don’t increase much over the course of a career. A fifty year old in those occupations earns about what a twenty-five year old does, which is pretty painful if you think about a career in those industries.

Richard Glover:                 What about the other end of the scale we hear about the bank executives and so forth who are paid just millions and millions of dollars each year, when people complain about that they say “well it’s a globalised economy, if we don’t pay or commonwealth bank or ANZ don’t pay our executives this sort of money, they will go to Scotland, they will go to England, they will go to Germany or whatever.”

Andrew Leigh: There’s certainly got to be a hint of truth about that, I mean you look back to the early 1980s and there are a number of reports that talk about the low quality of Australian management talent of that era. But what you’ve got now, is you’ve got Australian companies looking to pay an international wage because they do an international search. You ask a company ‘would you pay above median for your CEO?’ and nine out of ten company boards say yes. Of course, nine out of ten can’t actually pay above average and so the effect is a ratcheting up effect.

Richard Glover:                 How do we compare to other countries overseas, we’ve got an idea of ourselves as egalitarian; do the figures show that we are?

Andrew Leigh: If you take sort of the 30 or so rich countries in then we’re about in the top third, so we’re not as unequal as the United States but we’re significantly more unequal then most European countries.

Richard Glover:                                 So the top third in the sense of equality or inequality?

Andrew Leigh: Inequality, sorry so, so, so we-

Richard Glover:                                 We are among the third most unequal?

Andrew Leigh: Exactly. Exactly so we’re, the United States is generally regarded as the rich country that has the biggest gap between rich and poor. Sweden, Finland, Norway are regarded as the most equal rich counties, and we’re closer to the US then we are to the Scandinavians.

Richard Glover:                 Okay so now we come to the figures, and I invite everyone to think about what they earn themselves, and put their figure against the figures that you’re going to supply. How, how much do you need to earn today to consider yourself in the top 1%?

Andrew Leigh: Ah so, last year we have is 2010-11 which is %210,000 to enter that top 1%. That’s an individual income.

Richard Glover:                                 $210,000 as an individual?

Andrew Leigh: Yes -

Richard Glover:                                 And then you’re in the top 1%.

Andrew Leigh: That’s right.

Richard Glover:                                 How do you get in the top 0.1%?

Andrew Leigh: $688,000 as an annual income puts you in the top 0.1%.

Richard Glover:                 Then you’re in the uber-rich, but of course the executives who make headlines often make not $688,000 but 3 million or 5 million. Don’t they?

Andrew Leigh: That’s right and so if you get, if you’ve got a million dollar salary then you’re in the top 0.5 per cent and so on upwards. And you see rising inequality right through. One of the things that Tony Atkinson and I noticed when we crunched this data is; not only is the gap between the top 1% and the rest increasing, but the gap between the top 0.1% and the rest of the top 1% is increasing as well.

Richard Glover:                 Some people argue within equality that actually the bottom end has been, has done quite well and they point to, Mr Howard did actually take a lot of money and give it to, certainly to working families for instance under family benefit, tax benefits and so forth and this helped the bottom end but it’s really the middle class who have suffered in Australia over the last 20 years, do you agree with that?

Andrew Leigh: Well you see income growth right through the scale in Australia which is different from what you see if you look at the United States. You know the bottom 10% in the US are earning basically after inflation are earning what they earned in the early seventies. That’s not true here. The bottom 10% have seen real gains in incomes, but they’ve seen smaller real gains then the top 10% have seen, so we’ve got all boats rising but we’ve got the ocean liners rising faster than the tug boats.

Richard Glover:                 And the dinghies left behind. Andrew Leigh is here. What about if the top ten per cent, what sort of sum of money do you have to earn to be in the top 10%?

Andrew Leigh: $81,000 dollars takes you into the top 10% - probably the figure that I find surprises people the most.

Richard Glover:                 Is that right? Because they think that’s not that much and yet you’re obviously within the

Andrew Leigh: Exactly, there are more families that have incomes over $81,000 but if your individual income is over $81,000 dollars then you’re earning a higher income than 90% of Australian adults.

Richard Glover:                 Which brings us to that whole debate again of what is rich, which we have every time you know somebody, talks about means testing something and people, various people -

Andrew Leigh: Do we have to have this debate Richard?

Richard Glover:                 Yeah, various people including some people on the Labor side say well you can make $120,000 dollars, you’re not rich, but you know, by on your figures within the top 5% or something.

Andrew Leigh: Exactly, and look that’s what I find is the most useful and tractable way of looking at things, because I think there is just, there’s far heat than light around whether or not somebody calls someone else rich. So I can certainly say that I don’t know whether $210,000 is rich or poor but it puts you in the top 1% of individual income earners.

Richard Glover:                                 Okay, if you’re earning $81,000 as an individual you’re in the top 10%?

Andrew Leigh: Correct.

Richard Glover:                 And just, can we come down just one set of figures too, If you’re earning something like $65,000 or something like that, where are you then?

Andrew Leigh: Ah, so our figures are just looking at the top because that allows us to go way back to the beginning of the century. So I’d be,

Richard Glover:                 Guessing.

Andrew Leigh: Yes, guessing at that stage but um, my guess is that it would put you somewhere around the top twenty or thirty per cent.

Richard Glover:                                 So you’re still comparatively well off?

Andrew Leigh: Yes, that’s right, yes.

Richard Glover:                                 Very good. Interesting to talk to you Andrew, thank you so much.

Andrew Leigh: Likewise Richard. Thanks again.