Our top 1% of income earners is an increasingly entrenched elite

The share of total income collected by the top 1% of Australia’s income earners has been trending upwards since the 1980s. It is now about 9% of total income.

How concerned should we be about this? To some extent it depends on fluidity of membership of the top 1% (which in Australia means earning a pretax income of at least A$246,000).

If someone is part of the 1% this year but not last year, this would suggest income inequality is a fact of life but at least we still have social mobility: people have good and bad years, with the top 1% largely comprising people who happen to be having a good year. It won’t bother the other 99% of us so much.

But if the top 1% comprises the same people every year, we will be more concerned about an entrenched elite moving ever further away from the rest of us.

Our research – using newly available longitudinal tax data – has made it possible to evaluate the extent of “top-end mobility” over the past three decades. This is the first evidence on the extent to which membership of Australia’s top 1% (or other top income groups) changes from year to year.

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We find there is considerable mobility at the top. For example, since 1991 at least a quarter of the top 1% in any given year have not been in the top 1% in the next year.

But there has been an appreciable decline in top income mobility.

For example, 64% of people in the top 1% in 1991 were still in the top 1% a year later. 73% of those in the top 1% in 2016 were still there in 2017.

In 1991, 29% remained in the top 1% for the next three years. In 2012, 38% remained in the top 1% for the next three years.

What our results show

Our findings, based on a variety of approaches, show most of the decrease in movements in and out of the top 1% occurred in the mid-2000s and early 2010s. We found the same trend in the top 0.1% and top 10% income groups.

Splitting 1991 to 2015 into five periods of five years each, we find that half of those who appeared in the top 1% at any time between 1991 and 1995 were there for one year only. By 2011-15 the proportion of one-time entrants had dropped to 38%, meaning more people making it to the top 1% staying there for longer.

Another indicator of the increased “stickiness” at the top are higher re-entry rates: those dropping out of the top 1% are more likely to return in subsequent years.