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Some Malaysian inequality measures more equal than others

Author: Hwok-Aun Lee, University of Malaya

Is inequality in Malaysia going up or down? Answers differ. Official statistics unambiguously show household income inequality going down in the past decade, but almost everyone seems to think it has gone up. So what’s going on?

 A boy runs at a temple casted with shadows of traditional Chinese lantern decorations ahead of the Chinese Lunar New Year in Kuala Lumpur, Malaysia, on Tuesday, 17 Feb 2015. (Photo: AAP)

The most common measure of income inequality is the Gini coefficient. It suggests falling inequality in Malaysia. The Gini coefficient fell from 0.46 in 2002 to 0.43 in 2012. This Gini coefficient series was calculated using Malaysia’s Household Income Survey — a large sample, consistent and nationally representative dataset. Statistics derived from this source carry substantial weight.

But popular perception and anecdotal accounts view the issue differently. Most people seem to think that inequality has been rising, or at least persisting at high levels. The dissonance between the official figures and public perception warrants further investigation.

Rising inequality also loomed large in Malaysian popular discourse in the 1990s. But across that period, official statistics backed up popular perceptions — Malaysia’s Gini coefficient increased.

Public policy has for decades been preoccupied with targeting and monitoring reductions in inequality between ethnic groups. But the data and the policy direction seem to be at odds. Since 2010, some ethnicity-blind programs have been introduced to target the exclusion and lagging socioeconomic progress of the bottom 40 per cent of households. But this group actually had the highest income growth in the preceding decade. From 2002 to 2012, mean household income for the bottom 40 per cent grew by 6.1 per cent annually, compared to 5.6 per cent for the middle 40 per cent and 4.6 per cent for the top 20 per cent of households.

Why are low income households still considered to be in great need of assistance when their incomes have improved significantly?

Inequality is a zeitgeist issue that has resonance materially, politically and emotionally, regardless of official Gini coefficients. The notion that inequality has risen is believable because of a wider malaise in Malaysia. Malaysians are dissatisfied with rising prices, sluggish wage growth and economic insecurity. Many also resent the concentration of wealth among elites, especially through political-business connections or suspiciously corrupt means. Continual reports of misappropriation of public funds and the lavish livelihoods of corporate, financial and political elites tend to reinforce perceptions of unfairness and unequal opportunity.

Surveys by the Merdeka Center offer some insight into public opinion. In recent years, concerns over economic conditions, especially inflation, employment and wages, have grown. In April 2005, the top concerns were crime and public safety (16 per cent of respondents deemed this the biggest national problem), inflation (10 per cent), business opportunities and economic growth (9 per cent), with unemployment/lack of job opportunities (4 per cent) further down the list. In October–November 2012, the majority considered price hikes/inflation/rising cost of living to be the most pressing issue (23 per cent), followed by crime (7 per cent), unemployment/lack of employment opportunities (6 per cent) and unfavourable economic conditions (6 per cent). It is possible that Malaysians are simply conflating the general economic environment with inequality.

But it is also important to remember that everyone experiences inequality differently. For example, household income inequality need not move in the same direction as personal wage inequality or household wealth inequality. And the Gini coefficient isn’t the only way of measuring income inequality, either.

Malaysia’s official inequality statistics are calculated based on gross household income — that is, adding together all forms of income from multiple sources, including earned income (wages and self-employment earnings) and non-earned income (rent, dividends, transfers, remittances, and so on). It also counts multiple earners in the same household. This highly aggregated calculation can mask the effects of wage growth and asset accumulation, and other factors that affect inequality.

The full Household Income Survey datasets are also not available, meaning research in this field must assemble data from other sources.

One of these sources is data from the Employees’ Provident Fund (EPF), which allows us to calculate wage inequality over time. Formally employed private sector workers maintain accounts with the EPF, which had 6.5 million active members in 2013. Members regularly contribute to their accounts from basic wages and receive dividend payments, at uniform rates regardless of the size of the account. So changes in the distribution of EPF accounts will likely reflect changes in the distribution of wages. And the Gini coefficient of EPF savings accounts has been rising, giving us grounds to believe that wage inequality has increased in the past decade or so.

Other sources concur with a broad picture of steadily rising inequality. In the public sector, the number of managers and professionals at the upper regions of the wage distribution has grown disproportionately faster. Luxury cars constitute an increasing share of passenger vehicle sales, while property sales show rising concentration at the upper end.

Popular perceptions of rising inequality, it turns out, are supported by empirical evidence. Household inequality may be falling, as the data suggests, but other forms of inequality are rising.

Malaysia needs to pay more attention to wage distribution and labour market dynamics as well as wealth inequality. There are indications that wage inequality is rising, as well as widespread concerns over wage growth, household livelihood and housing affordability.

And the rich Household Income Survey datasets need to be made available for exploration — again, to investigate earnings and wealth, and to disaggregate personal and household dimensions. Only then can we really begin to untangle the complexities of inequality in Malaysia.

Hwok Aun Lee is Senior Lecturer in the Department of Development Studies at the University of Malaya. This article draws on a working paper co-written with Muhammed Abdul Khalid.

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