KUALA LUMPUR — While the rate of poverty has declined from two decades ago, more than a million Malaysian households are still living in “relative poverty”, said Khazanah Research Institute (KRI) in a report published on Monday (Oct 15).
And even with narrowing income inequality, more people could be impoverished and destitute, it said in the report, The State of Households 2018: Different Realities’
“Say, for instance, in a year Malaysia has a poverty rate of 40 per cent, while in the following year its poverty rate is 30 per cent. The percentage of households living in poverty has clearly fallen,” said the policy research arm of sovereign wealth fund Khazanah Nasional.
“Suppose, however, that the population in the first year was 10 million while the population in the following year was 20 million.
“This would mean that there were four million poor households in the first year and six million in the following year. The number of poor households would have increased by two million.”
WAGE DISPARITY
The study also showed that despite the general narrowing of income inequality with the Gini coefficient declining from 0.513 in 1970 to 0.399 in 2016, the gap between the rich and the poor could still be growing.
The Gini coefficient is a gauge of economic inequality, measuring income distribution among a population. It is measured between zero, which is perfect equality, and one, where there is perfect inequality. The coefficient does not explicitly capture changes in the top 10 per cent of earners or the bottom 40 per cent, where most poverty lies.
KRI’s report revealed the gap in mean income between T20 (top 20 per cent earning) and M40/B40 (middle 40 per cent/bottom 40 per cent) households had almost doubled, compared with two decades ago.
Urban households earn on average 80 per cent more than rural households, and households with family heads with higher education and high-skill levels have household incomes three to four times more than those with no formal education or those in low-skilled jobs.
Households in the vast majority of districts earn less than the national median household income of RM5,228 (S$1,733) in 2016. Highly urbanised and populated districts have higher median household income.
POOR SPENDING NEARLY ALL THEIR INCOME
Lower-income households are also shown to be spending more of their income, with households earning below RM 2,000 consuming almost 95 per cent of their income.
Conversely, households above RM15,000 monthly income spend only 45 per cent of their incomes.
“Worryingly, for households earning below RM2,000, the income remaining after accounting for inflation is only RM76 in 2016, reduced from RM124 in 2014. This highlights that households earning below RM2,000 are potentially very vulnerable to economic shocks or emergencies,” the report said.
KRI said household income also varied by state. According to the Malaysian household income distribution in 2016, M40 households are defined as those with income between RM4,360 and RM9,619.
“However, if we consider the income distribution at individual state, the equivalent state-level thresholds vary significantly. A T20 household in Kelantan, Perlis or Pahang may be a B40 household in KL. Households in Malacca, Johor and Penang correspond more closely to national average,” the report said.
KRI noted that the average household income level in greater Kuala Lumpur was almost twice as high as the rest of Malaysia.
Between 2014 and 2016, households with income below RM5,000 ate less but spent more on food because of inflation.
For richer households, the shifts are more lifestyle oriented – from expenditure on food at home to food away from home, and on cultural and entertainment services. THE MALAYSIAN INSIGHT
And even with narrowing income inequality, more people could be impoverished and destitute, it said in the report, The State of Households 2018: Different Realities’
“Say, for instance, in a year Malaysia has a poverty rate of 40 per cent, while in the following year its poverty rate is 30 per cent. The percentage of households living in poverty has clearly fallen,” said the policy research arm of sovereign wealth fund Khazanah Nasional.
“Suppose, however, that the population in the first year was 10 million while the population in the following year was 20 million.
“This would mean that there were four million poor households in the first year and six million in the following year. The number of poor households would have increased by two million.”
WAGE DISPARITY
The study also showed that despite the general narrowing of income inequality with the Gini coefficient declining from 0.513 in 1970 to 0.399 in 2016, the gap between the rich and the poor could still be growing.
The Gini coefficient is a gauge of economic inequality, measuring income distribution among a population. It is measured between zero, which is perfect equality, and one, where there is perfect inequality. The coefficient does not explicitly capture changes in the top 10 per cent of earners or the bottom 40 per cent, where most poverty lies.
KRI’s report revealed the gap in mean income between T20 (top 20 per cent earning) and M40/B40 (middle 40 per cent/bottom 40 per cent) households had almost doubled, compared with two decades ago.
Urban households earn on average 80 per cent more than rural households, and households with family heads with higher education and high-skill levels have household incomes three to four times more than those with no formal education or those in low-skilled jobs.
Households in the vast majority of districts earn less than the national median household income of RM5,228 (S$1,733) in 2016. Highly urbanised and populated districts have higher median household income.
POOR SPENDING NEARLY ALL THEIR INCOME
Lower-income households are also shown to be spending more of their income, with households earning below RM 2,000 consuming almost 95 per cent of their income.
Conversely, households above RM15,000 monthly income spend only 45 per cent of their incomes.
“Worryingly, for households earning below RM2,000, the income remaining after accounting for inflation is only RM76 in 2016, reduced from RM124 in 2014. This highlights that households earning below RM2,000 are potentially very vulnerable to economic shocks or emergencies,” the report said.
KRI said household income also varied by state. According to the Malaysian household income distribution in 2016, M40 households are defined as those with income between RM4,360 and RM9,619.
“However, if we consider the income distribution at individual state, the equivalent state-level thresholds vary significantly. A T20 household in Kelantan, Perlis or Pahang may be a B40 household in KL. Households in Malacca, Johor and Penang correspond more closely to national average,” the report said.
KRI noted that the average household income level in greater Kuala Lumpur was almost twice as high as the rest of Malaysia.
Between 2014 and 2016, households with income below RM5,000 ate less but spent more on food because of inflation.
For richer households, the shifts are more lifestyle oriented – from expenditure on food at home to food away from home, and on cultural and entertainment services. THE MALAYSIAN INSIGHT
