TRENDS IN INCOME INEQUALITY AND STRATEGIES FOR MORE EQUITABLE GROWTH BY DR SULOCHANA NAIR

OUTLINEINTRODUCTIONWHY IS IT IMPORTANT TO TALK ABOUT INEQUALITYTRENDS IN INCOME INEQUALITY CAUSES FOR CONCERNSTRATEGIES FOR MORE EQUITABLE GROWTH

Introduction : Key issues concerning income distributiona) Distribution of what distribution of current monetary (private) income-normally pre tax sometimes post tax and subsidyb) Distribution among whom household vs individual gender implicationsc) Distribution within which unit-society or nation

Need to Widen Dimensions of Inequality Intra household income distribution-gender 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 distributionsDistribution of capabilities or functioning of basic needs goods and services or of human achievementsExamine distribution of more direct measures of well being health nutrition and happiness

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 InequalityInequality 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 .

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 MalaysiaMalaysian development strategy of the 70s emphasized growth with distributionRecognized 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

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

Income distribution Concerns in MalaysiaMalaysia'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

Income Distribution and Development Income distribution is important for development as it influences cohesion of societydetermines the extent of poverty for any given average per capita income affects the poverty reducing effects of growthImpacts peoples health

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 aThe relationship between poverty and inequality

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 levelsHigher income inequality may reduce growth rates and make it more difficult to reduce poverty

Why important to talk about income inequality

Sensitivity of poverty to growth is depends on a countrys income distributionDistribution 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.

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

Why important to talk about income inequality

Income distribution pertinent in addressingpoverty 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.

Incidence Of Poverty by State(%)State 1999 2002More DevelopedJohor2.5 1.8Melaka5.7 2.7Negeri Sembilan2.52.2Perak 9.57.9Pulau Pinang 2.7 1.4Selangor1 2.01.1Wilayah Persekutuan Kuala Lumpur 2.3 0.5Less DevelopedKedah 13.5 10.7Kelantan 18.7 12.4Pahang 5.5 3.8Perlis 13.3 10.1Sabah2 20.1 16.0Sarawak6.7 5.8Terengganu14.9 10.7Malaysia 7.5 5.1Notes:2 Includes Wilayah Persekutuan Labuan. 1 Includes Wilayah Persekutuan Putrajaya.

Incidence of Poverty (%)

Total Urban Rural19997.5 3.4 12.4

20025.1 2.0 11.4

Total Households (000)

TotalUrbanRural19994,800.0 2,612.5 2,187.52002 5,220.6 3,482.9 1,737.7

Number of Poor Households (000)TotalUrbanRural 1999360.1 89.1 271.0 2002267.9 69.6198.3

Incidence of Hardcore Poverty (%)

TotalUrbanRural 19991.4 0.5 2.420021.0 0.4 2.3

Number of Hardcore-Poor Households (000)

TotalUrban Rural1999 66.0 13.9 52.12002 52.912.6 40.3

MEAN MONTHLY GROSS HOUSEHOLD INCOMEBY ETHNIC GROUP, 1999 AND 2002

Ethnic Group19992002Bumiputera 1,9842,376 Chinese 3,456 4,279 Indians2,702 3,044Others 1,371 2,165 Malaysia 2,472 3,011

MEAN MONTHLY GROSS HOUSEHOLD INCOMEBY SECTOR, 1999 AND 2002(Ringgit Malaysia)

19992002Urban 3,103 3,652

Rural 1,718 1,729

Average Annual Growth Rate (%),2000-2002

Ethnic GroupBumiputra6.2Chinese 7.4Indian4.1Others16.5Malaysia6.8Urban5.6Rural0.2

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

Mean (RM)1970 1973 1976 1979 1984 1987 1990 1995 1997 1999All 423 502 566 669 792 760 1,167 2,020 2,606 2,472

Urban (U 687 789 913 942 1,114 1,039 1,617 2,589 3,357 3,103

Rural (R) 321 374 431 531 596 604 951 1,326 1,704 1,718 Disparity Ratio (U/R) 2.14 2.11 2.12 1.77 1.87 1.72 1.70 1.95 2.04 1.81

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 1990 1995 1999 2002 Top 20% 1,877 2,938 2,925 5,020 6,268 - 55.5) (53.5) (50.0) (51.3) (50.5) (51.3)

Middle 40% 554 929 1,037 1,777 2,204 - (32.7) (33.8) (35.5) (35.0) (35.5) (35.2)

Bottom 40% 201 347 424 693 865 ( (11.9) (12.7) (14.5) (13.7) ( 14.0) (13.5)

Top 20% / Bottom 20% 4.66 4.21 3.45 3.74 3.61 3.80

Malaysia: Distribution of Household Income by Ethnicity, 1970-1999Mean (RM)

1970 1973 1976 1979 1984 1987 1990 1995 1999Overall 423502 566 669 792 760 1,167 2,020 2,472

Bumiputera 276 335 380 475 616 614 940 1,604 1,984

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 1,798 1,395 1,816 1,775 2,043 955 1,284 1,371

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 2.281.91 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

INCOME STRATA ACCORDING TO ETHNIC GROUP 1990-1997

Income Group19901997BumiputraChineseIndian BumiputraChineseIndian Top20%13,234.121.112.933.224.1Middle 40%37.244.847.438.546.547.3Bottom 40%49.621.131.148.620.328.6

ETHNIC COMPOSITION OF HOUSEHOLDS IN THE TOP 20% , MIDDLE 40% AND BOTTOM 40 INCOME GROUPS 1997

BOTTOM 40%MIDDLE 40%TOP 20%BUMIPUTRA70.255.637.3CHINESE14.433.147.3INDIANS5.38.78.8OTHERS10.12.66.5MEAN MONTHLY INCOME84020027200

Malaysia: Gini Coefficient By Region, 1970-2002