TRENDS IN INCOME INEQUALITY

AND STRATEGIES
FOR MORE EQUITABLE GROWTH
BY
DR SULOCHANA NAIR

OUTLINE
INTRODUCTION
WHY IS IT IMPORTANT TO TALK ABOUT
INEQUALITY
TRENDS IN INCOME INEQUALITY
CAUSES FOR CONCERN
STRATEGIES FOR MORE EQUITABLE
GROWTH
2

Introduction : Key issues

concerning income distribution
a) Distribution of what distribution of
current monetary (private) incomenormally pre tax sometimes post tax and
subsidy
b) Distribution among whom household
vs individual gender implications
c) Distribution within which unit-society or
nation
3

Need to Widen Dimensions of

Inequality
Intra household income distributiongender implications
Post tax income
Impact of state transfers
Include social incomes (ie goods and
services provided by the state

Need to Widen Dimensions of

Inequality
Need to include future incomes by adding
current asset distributions
Distribution of capabilities or functioning of
basic needs goods and services or of
human achievements
Examine distribution of more direct
measures of well being health nutrition
and happiness
5

Need to Widen Dimensions of

Income Inequality
A broader approach to distribution is
needed-eg access to education is a
major influence on future household
incomes may also affect the rate of growth

Need to Widen Dimensions of

Income Inequality
Inequality to health services can be more
important than inequality in incomes as life
may depend on it
Also Question of functional income ie
distribution between profits wages rents

 Distribution among whom Individuals

Households groups
Relevant distribution is that among groups
not individuals such as the distribution
between groups of different ethnicities,
religions, regions or races Vertical inequality as opposed to
Horizontal Inequality -Frances Stewart .
8

 Vertical Inequality measures of distribution

among households or individuals
Horizontal Inequality between culturally defined
groups. causes of conflict , multi dimensional
with political social and economic elements
affects individual well being and social stability

Income distribution Concerns in

Malaysia
Malaysian development strategy of the
70s emphasized growth with distribution
Recognized that equitable growth between
races was necessary for social stability
and participation of poor in the process of
development a key element of the NEP

10

Income distribution Concerns in

Malaysia
Policy efforts geared to reduce poverty
and economic differences between the
Malays and Chinese
Income distribution as policy concern first
mentioned in the 4th Malaysia Plan in 1981

11

Income distribution Concerns in

Malaysia
Malaysia's efforts to reduce poverty and
ethnic differentials have had an positive
impact on income inequality
Poverty reduction strategies which
emphasized increasing income levels of
the poor at a faster rate than rest of the
population contributed significantly to
reducing inter ethnic income inequalities
12

Income Distribution and

Development
Income distribution is important for
development as
it influences cohesion of society
determines the extent of poverty for any given
average per capita income
affects the poverty reducing effects of growth
Impacts peoples health

13

Why important to talk about income

inequality
Income Inequality has remerged a a policy
concern in developing countries in the
nineties a with greater attention being paid
to causes of inequality a
The relationship between poverty and
inequality

14

Why important to talk about income

inequality
Long term objective of poverty eradication
contingent upon reducing income
inequalities
Positive correlation between high income
inequality and poverty levels
Higher income inequality may reduce
growth rates and make it more difficult to
reduce poverty
15

Why important to talk about income

inequality
Sensitivity of poverty to growth is depends on a
countrys income distribution
Distribution of income has a significant impact
on rates of growth with more equal societies
growing faster than less equal ones
Even if benefits of growth are spread in society
higher income inequality would result in the
poor having a smaller share of the benefits thus
slowing down poverty reduction.
16

Why important to talk about income

inequality
Average health status of a society
depends on its income distribution status
Societies with more unequal distributions
have lower life expectancies
An equitable distribution of income as well
as the achievement of social goals are
essential aspects of development over
and above economic growth
17

Why important to talk about income

inequality
Income distribution pertinent in addressing
poverty challenges.
In 1999 Malaysia had the highest income
disparity in the Asia Pacific region with
income disparity ratios of 11.7% between
the richest 20% and the poorest 20% of
the population.

18

Incidence Of Poverty by State

(%)

State
1999
2002
More Developed
Johor
2.5
1.8
Melaka
5.7
2.7
Negeri Sembilan
2.5
2.2
Perak
9.5
7.9
Pulau Pinang
2.7
1.4
Selangor1
2.0
1.1
Wilayah Persekutuan Kuala Lumpur
2.3
0.5
Less Developed
Kedah
13.5
10.7
Kelantan
18.7
12.4
Pahang
5.5
3.8
Perlis
13.3
10.1
Sabah2
20.1
16.0
Sarawak
6.7
5.8
Terengganu
14.9
10.7
Malaysia
7.5
5.1
Notes:
2 Includes Wilayah Persekutuan Labuan. 1 Includes Wilayah Persekutuan Putrajaya.

19

Incidence of Poverty (%)

Total

Urban

Rural

7.5

3.4

12.4

5.1

2.0

11.4

1999

2002

20

Total Households (000)

Total

Urban

Rural

4,800.0

2,612.5

2,187.5

2002

5,220.6

3,482.9

1,737.7

1999

21

Number of Poor Households

(000)
Total
1999
360.1
2002
267.9

Urban

Rural

89.1

271.0

69.6

198.3

22

Incidence of Hardcore Poverty

(%)
Total

1999
1.4
2002
1.0

Urban

Rural

0.5

2.4

0.4

2.3
23

Number of Hardcore-Poor Households

(000)

Total
1999
66.0
2002
52.9

Urban

Rural

13.9

52.1

12.6

40.3

24

MEAN MONTHLY GROSS HOUSEHOLD INCOME

BY ETHNIC GROUP, 1999 AND 2002

Ethnic Group

1999

2002

Bumiputera

1,984

2,376

Chinese
Indians
Others
Malaysia

3,456
2,702
1,371
2,472

4,279
3,044
2,165
3,011
25

MEAN MONTHLY GROSS HOUSEHOLD INCOME

BY SECTOR, 1999 AND 2002
(Ringgit Malaysia)

Urban

1999
3,103

2002
3,652

Rural

1,718

1,729

26

Average Annual Growth Rate (%),

2000-2002

Ethnic Group
Bumiputra
Chinese
Indian
Others
Malaysia
Urban
Rural

6.2
7.4
4.1
16.5
6.8
5.6
0.2
27

Malaysia: Urban/Rural Distribution of Household Income, 1970-1999

Mean (RM)1970

1973

1976

1979

1984

1987

1990

All

502

566

669

792

760

1,167 2,020 2,606 2,472

1,617 2,589 3,357 3,103

423

Urban (U

687

789

913

942 1,114 1,039

Rural (R)

321

374

431

531

Disparity
Ratio (U/R)
1.81

2.14

2.11

2.12

1.77

596
1.87

604
1.72

1995

1997

1999

951 1,326 1,704 1,718

1.70

1.95

2.04

28

Malaysia: Mean and Proportion of Income Shares

Of Total Monthly Gross Household Income
of Top 20 percent, Middle 40 percent
and Bottom 40 percent of Households 1980-2002

Mean RM (Proportion %)
1980
1985
Top 20%

1,877
55.5)

2,938
(53.5)

Middle 40%

554
(32.7)

929
(33.8)

Bottom 40%

201

347

1990

1995

2,925
(50.0)

5,020
(51.3)

1,037
(35.5)
424
(11.9)

1,777
(35.0)
693
(12.7)

1999

2002

6,268
(50.5)
2,204
(35.5)

(51.3)
(35.2)

865
(14.5)

(13.7)

( 14.0)

(13.5)
Top 20% /
Bottom 20%

4.66

4.21

3.45

3.74

3.61

3.80

29

Malaysia: Distribution of Household Income by Ethnicity, 1970-1999

Mean (RM)

1970

1973

1976

1979

1984

1987

1990

1995

1999

423

502

566

669

792

760

1,167

2,020

2,472

Bumiputera 276

335

380

475

616

614

940

1,604

1,984

Overall

Chinese

632

739

866

906

1,086

1,012

1,631

2,890

3,456

Indian

478

565

592

730

791

771

1,209

2,140

2,702

Others

1,304

1,816

1,775

2,043

955

1,284

1,371

1,798 1,395

30

Malaysia Income Disparity Ratios by Ethnic

Groups 1970-1980
1970

1973

1976

1979

1984

1987

1990

1995

1999

Chinese/Bumiputra (C/B)
2.29
2.21
2.28
1.91

1.76

1.65

1.74

1.80

1.74

Indian/ Bumiputra (I/B)

1.73
1.69
1.56

1.54

1.28

1.26

1.29

1.33

1.36

Chinese /Indian (C/I)

1.32
1.31
1.46

1.24

1.37

1.31

1.35

1.35

1.28

31

INCOME STRATA ACCORDING TO ETHNIC GROUP 1990-1997

1990

1997

Income Group
Bumiputra

Chinese

Indian

Bumiputra

Chinese

Indian

Top
20%

13,2

34.1

21.1

12.9

33.2

24.1

Middle 40%

37.2

44.8

47.4

38.5

46.5

47.3

Bottom 40%

49.6

21.1

31.1

48.6

20.3

28.6

32

ETHNIC COMPOSITION OF HOUSEHOLDS IN THE TOP 20% , MIDDLE 40%

AND BOTTOM 40 INCOME GROUPS 1997

BOTTOM
40%

MIDDLE 40%

TOP
20%

BUMIPUTRA

70.2

55.6

37.3

CHINESE

14.4

33.1

47.3

INDIANS

5.3

8.7

8.8

OTHERS

10.1

2.6

6.5

MEAN
MONTHLY
INCOME

840

2002

7200

33

Malaysia: Gini Coefficient By Region, 1970-2002

Region

1970

1975

1980

1985

1990

Peninsula
r
Malaysia

0.5129

0.5570

0.5080

0.4798

0.4406

Sabah

0.4900

Sarawak

0.5010

Malaysi
a

0. 0 505

0.4907

1995

0.4571

1999

2002

0.4442

0.4600

0.4592

0.4477

0.4477

0.4649

0.4983

0.4412

0.4397

0.4066

0.4451

0.4826

0.4421

0.4560

0.4432

0.4607

34