Income polarisation, expenditure and the Australian urban middle class

Abstract

Recent years have seen growing concern about the ‘hollowing out’ of the middle class, due to processes of polarisation. In this paper, we examine different conceptualisations of polarisation, and introduce the concept of expenditure-adjusted polarisation that considers not only income, but also various key categories of expenditure at a household level: housing, groceries and meals, transport and energy. Analysing longitudinal data from the Household, Income and Labour Dynamics in Australia Survey, we show that the Australian society is significantly more polarised, with fewer middle-income households, when the relative size of income groups in a given year is based on expenditure-adjusted income rather than pre-expenditure income. Such polarisation is particularly prominent when housing expenditure is considered and has distinctive spatial patterns. In contrast, our analysis finds no evidence of a temporal pattern of polarisation in Australia between 2005 and 2019, with no substantial change in the size of income groups over time, regardless of which income measures are used. We argue that a more nuanced conceptualisation of polarisation, and its relation to processes of ‘hollowing out’ and rising inequality, is needed to inform urban scholarship and policy.