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

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

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

4. 4 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

5. 5 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

6. 6 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

7. 7 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

8. 8 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.

9. 9 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

10. 10 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

11. 11 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 4 th Malaysia Plan in 1981

12. 12 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

13. 13 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 people’s health

14. 14 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

15. 15 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

16. 16 Why important to talk about income inequality Sensitivity of poverty to growth is depends on a country’s 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.

17. 17 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

18. 18 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.

19. 19 Incidence Of Poverty by State (%) State 1999 2002 More Developed Johor2.5 1.8 Melaka5.7 2.7 Negeri Sembilan2.52.2 Perak 9.57.9 Pulau Pinang 2.7 1.4 Selangor1 2.01.1 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 Sarawak6.7 5.8 Terengganu14.9 10.7 Malaysia 7.5 5.1 Notes: 2 Includes Wilayah Persekutuan Labuan. 1 Includes Wilayah Persekutuan Putrajaya.

20. 20 Incidence of Poverty (%) Total Urban Rural 1999 7.5 3.4 12.4 2002 5.1 2.0 11.4

21. 21 Total Households (’000) TotalUrbanRural 1999 4,800.0 2,612.5 2,187.5 2002 5,220.6 3,482.9 1,737.7

22. 22 Number of Poor Households (’000) TotalUrbanRural 1999 360.1 89.1 271.0 2002 267.9 69.6198.3

23. 23 Incidence of Hardcore Poverty (%) TotalUrbanRural 1999 1.4 0.5 2.4 2002 1.0 0.4 2.3

24. 24 Number of Hardcore-Poor Households (’000) TotalUrban Rural 1999 66.0 13.9 52.1 2002 52.912.6 40.3

25. 25 MEAN MONTHLY GROSS HOUSEHOLD INCOME BY ETHNIC GROUP, 1999 AND 2002 Ethnic Group19992002 Bumiputera 1,9842,376 Chinese 3,456 4,279 Indians2,702 3,044 Others 1,371 2,165 Malaysia 2,472 3,011

26. 26 MEAN MONTHLY GROSS HOUSEHOLD INCOME BY SECTOR, 1999 AND 2002 (Ringgit Malaysia) 19992002 Urban 3,103 3,652 Rural 1,718 1,729

27. 27 Average Annual Growth Rate (%), 2000-2002 Ethnic Group Bumiputra6.2 Chinese 7.4 Indian4.1 Others16.5 Malaysia6.8 Urban5.6 Rural0.2

28. 28 Malaysia: Urban/Rural Distribution of Household Income, 1970-1999 Mean (RM)1970 1973 1976 1979 1984 1987 1990 1995 1997 1999 All 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

29. 29 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

30. 30 Malaysia: Distribution of Household Income by Ethnicity, 1970-1999 Mean (RM) 1970 1973 1976 1979 1984 1987 1990 1995 1999 Overall 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

31. 31 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

32. 32 INCOME STRATA ACCORDING TO ETHNIC GROUP 1990-1997 Income Group 19901997 BumiputraChineseIndianBumiputraChineseIndian Top 20% 13,234.121.112.933.224.1 Middle 40%37.244.847.438.546.547.3 Bottom 40%49.621.131.148.620.328.6

33. 33 ETHNIC COMPOSITION OF HOUSEHOLDS IN THE TOP 20%, MIDDLE 40% AND BOTTOM 40 INCOME GROUPS 1997 BOTTOM 40% MIDDLE 40%TOP 20% BUMIPUTRA70.255.637.3 CHINESE14.433.147.3 INDIANS5.38.78.8 OTHERS10.12.66.5 MEAN MONTHLY INCOME 84020027200

34. 34 Malaysia: Gini Coefficient By Region, 1970-2002 Region19701975198019851990199519992002 Peninsula r Malaysia 0.51290.5570 0.50800.4798 0.4406 0.45710.44420.4600 Sabah -- 0.4900 0.49070.45920.4477 0.4649 Sarawak -- 0.50100.4983 0.44120.43970.40660.4451 Malaysi a -- 0. 0 5050.48260.44210.45600.44320.4607