Is Inequality Really Declining in Malaysia?

ABSTRACT

Official statistics report rapidly declining household income inequality in Malaysia during the 2000s. However, this phenomenon has passed unnoticed and unexplained, while public discourse widely asserts that inequality has either risen or remained high. In particular, salaries and wealth are perceived to be increasingly concentrated at the top. Difficulties in accessing national income survey data necessitate exploration of other data sources, which permit this article to investigate trends in personal earnings and wealth inequality. Recent information on retirement savings, as well as public sector employment and car sales, indicate earnings rising moderately or holding steady, marked by higher growth in the uppermost segments. On wealth ownership, housing sales record high growth at the top and lagging growth in the bottom half; while unit trust fund ownership suggests similar trends, particularly within the majority Bumiputera population. Our findings, while exhibiting gaps, shed some light on the state of inequality and broadly concur with public perceptions of rising or persistently high inequality. This study also underscores the multi-dimensionality of inequality and the importance of researching structural inequalities in labour and asset markets.

KEY WORDS:

• Inequality
• Malaysia
• earnings
• income
• wealth

Acknowledgements

The authors thank Abd Rahman Abd Rahim, Ahmad Fuad Rahmat, Gregory Ho, Yong Kah Chee and Clarence Choong for their diligent and resourceful research assistance. We also acknowledge with gratitude Goh Cheng Meng of the Malaysian Automotive Association for providing vehicle sales data, and Muhammad Ikmal Said for helpful comments. This study was presented at the 9th Malaysia Studies Conference (MSC9), Universiti Malaysia Terengganu, August 18–20, 2014, the Department of Development Studies & CPDS Seminar, November 5, 2014, University of Malaya, and the World Bank Development Research Group Kuala Lumpur Seminar Series, October 13, 2016. The authors gratefully acknowledge participants for comments and criticisms, and the Japan Foundation for sponsorship of the MSC9 panel. An earlier version of this article was also presented in a seminar at the Employees Provident Fund, February 4, 2015. The authors gratefully acknowledge the EPF management and staff for verification of our statistical computations and for feedback on the findings.

Disclosure Statement

The authors receive no financial interest or benefit arising from this research.

Notes

1. Inequality statistics are computed from the HIS by the Economic Planning Unit and disseminated in the Malaysia Plans. A full series is available at http://www.epu.gov.my/en/household-income-poverty.

2. In addition, another substantive report utilising the HIS has calculated a different, and higher, measurement of inequality. The World Bank’s Malaysia Economic Monitor: The Middle Class Society put the 2014 Gini coefficient of gross household income at 0.421, exceeding the official Gini coefficient of 0.401 for 2014 (World Bank 2014). This figure is calculated from a smaller, preliminary, nationally representative HIS dataset, but it is doubtful that using a subset of the HIS can account for the sizable discrepancy.

3. The HIS is conducted twice every five years. It constitutes a series of randomly sampled, nationally representative large datasets (about 80,000 households), and would be the preferred data source – provided there was full access. Unfortunately, access to the data is highly restrictive, although there is a policy permitting the HIS to be purchased by researchers. Raw data are not availed in full but are customised on an ad hoc basis. Malaysian government agencies holding the HIS datasets retain discretionary power to approve release of data variable by variable. These practices nullified the prospects for obtaining the raw data according to this study’s specifications and objectives. These prohibitive policies also apply to the Household Expenditure Survey (HES) datasets, a supplementary source for studying income inequality. The recent rounds of the HES were conducted in 1998/99, 2004/05 and 2009/10; these datasets are also not as contemporary as the HIS. The utility of the HES data, however, can be seen in poverty line income studies by Mok, Maclean, and Dalziel (2013).

4. In October 2011, Credit Suisse estimated that Malaysia had 39,000 US dollar millionaires in mid-2011, and that the number had almost doubled from 20,000 in the preceding 18 months (The Star, October 25, 2011). In 2013, Wealthinsight counted 26,000 Malaysian millionaires and predicted growth to 30,000 in four years (TheMalayMailOnline, December 9, 2014).

5. The BR1M payment for households earning below RM3,000 per month was raised from the initial RM500 per year in 2012, to RM650 in 2014, RM950 in 2015 and RM1,000 in 2016. In 2014, BR1M was introduced for households with RM3,001–4,000 income, starting at RM450 per year, then RM750 in 2015 and RM800 in 2016. Singles with income below RM2,000 were entitled to BR1M amounting to RM250 per year in 2013, RM300 in 2014 and RM400 in 2016.

6. The estimations are based on these parameters: 60% of gross income consists of earnings from paid employment, each household has 1.3 members earning income (wages and salaries or self-employment) earners per household.

7. We compute the variance of the annual change in inequality between two consecutive HIS (1989–1992, 1992–1995, 1995–1997, 1997–1999, 1999–2002, 2002–2004, 2004–2007, 2007–2009). The variance for the 2012–2014 interval exceeds that of all the previous intervals, by 3.9 times on average, from a minimum 2.2 to a maximum 9.1.

8. As disclosed in parliament in October 2016, BR1M appears to be proportionate to population: The disbursement of 2014: Selangor represented the highest with a total of 1,017,403 recipients, Johor (889,636) and Sarawak (735,817). Selangor is the most populous state, followed by Johor, while Sarawak is fourth after Sabah (The Sun Daily, October 18 2016).

9. Within the Indian and Bumiputera populations, which experienced sharper declines in inequality, the shares of paid employment and self-employment decline. The Indian population saw the largest proportional increase in the contribution to household income of property and investment (9.4% to 11.5%), followed by transfers (5.5% to 6.5%). These outcomes raise the possibility that changes in method of estimating property and investment sources, particularly imputed rent, have augmented household income growth, particularly in the lower brackets. However, some of these components are not actual income received, but estimated “notional” income.

10. We retain the nominal terms in which the data are reported. Inequality remains the same whether we use nominal and real terms, as the same price index applies to all income levels.

11. The Association maintains passenger car sales records, encompassing all major brands, from compact cars to sedans to luxury vehicles, including exclusive models by carmakers such as Mercedes Benz, BMW and Porsche – but excluding the elite brands like Ferrari and Maserati. Data on sales volume were basically complete, but some sale price figures were missing, which we resolve by sorting into price brackets. We imputed sale prices for 2011 based on current price listings at www.carlist.my. For 2001 and 2006, we imputed sale prices from the price ratios between models (for example, a 2.0L model is 1.5 times the price of a 1.6L car of the same maker) or the average price of similar models (for example, a Toyota Camry is in the same price category as the Honda Accord). All data are based on 2005 prices. With fairly broad price ranges, we are sufficiently confident that our imputed prices are reliable.

Additional information

Funding

This work was supported by a University of Malaya Research Grant (RG154-12SBS).