Analysing recent changes in indigenous and non-indigenous Australians' income: A synthetic panel approach

Data from the 1986, 1991 and 1996 censuses are used to conduct a synthetic cohort analysis of the income distributions for Indigenous and non-Indigenous males and females. The advantage of this approach is that statistical techniques can be used to control for unobservable differences between the Indigenous and non-Indigenous populations, such as ability and schooling quality, as well as assimilation, discrimination and other attitudes. The results demonstrate that the failure to control for unobserved differences in existing studies of Indigenous income will induce a significant bias in both empirical and policy analysis. Trends in relative income are also identified and are related to broad changes in labour force status. The deliberate policy shift in the early 1990s to paying welfare to individuals ('individualisation') has resulted in an increase in financial independence among many females. The other insight from the analysis is that the generosity of welfare payments or improved targeting of benefits has materially advantaged extremely poor Indigenous people. While this is a positive outcome in its own right, policy also needs to take into account the interaction between tax, welfare, productivity and incentives to work.