Despite substantial policy efforts to promote economic participation by Indigenous Australians, they continue to have low participation rates compared with non-Indigenous Australians. This study decomposes the gap in labour market attachment between Indigenous and non-Indigenous Australians in non-remote areas, combining two separate data sources in a novel way to obtain access to richer information than was previously possible. It shows that among women over 90 per cent of the gap can be attributed to differences in the observed characteristics between the two populations. For men, the differences in observed characteristics can account for 44–52 per cent of the gap. A detailed decomposition shows that lower education,
worse health, and larger families (particularly for women) explain the
lower labour market attachment of Indigenous Australians to a substantial extent. Compared with previous studies, this study is able to explain a larger proportion of the gap in employment between Indigenous and non-Indigenous people and hence provides greater insights into important factors for ‘Closing the gap’ policies.