The population sub-group income effects on inequality: Analytical framework and an empirical illustration

A method is developed to examine the population sub-group income effects on inequality using the generalized Theil indices. The proposed method is ill ustrated by computing the effects of marginal changes in the occupation-spe cific incomes on per capita income inequality in Australia based on data fo r 7197 sample households relating to the 1988-89 Household Expenditure Surv ey conducted by the Australian Bureau of Statistics (ABS). The study shows that the growth of (distribution neutral) per capita income in four occupat ions, namely, unemployed and pensioners, trade-persons, machine operators a nd laborers, is inequality reducing whereas the growth of per capita income in all other occupations is inequality augmenting. The occupation-specific income effects on between-group inequality are, however, stronger than cho se on within-group inequality. These findings are invariant to the choice o f alternative distributional weights used in the generalized Theil indices.