Income Inequality in Malaysia

This is more of a first stab at the subject, as I haven’t had time to really play with the data yet. So there won’t be much in the way of analysis beyond eyeballing the charts. The source of the data is from the Economic Planning Unit, and appears to be aggregated from various Household Income Surveys (HIS).

Here’s the time series for Malaysia’s Gini Coefficient:

There’s gaps in the data because the HIS is only conducted once every 2-3 years – about twice within each development plan period. Looking at the observable pattern there was an obvious increase in income inequality through the 1970s, before dropping off sharply in the 1980s.

While I daresay some might equate this to the impact of the “infamous” New Economic Policy, and Tun Mahathir’s subsequent adoption of industrialisation in the early 1980s – I wouldn’t necessarily disagree without digging further into the matter – I’m also inclined to ascribe some blame to inflation. CPI based inflation peaked at over 17% in 1974 before dropping to an average of 4.5% in the second half of the decade. Inflation in the 1980s was lower still at an average of 3.2% (and nearly 0% between 1985-87). At this juncture though, I’m not confident enough to state definitively one way or the other, or what other factors might have been at play.

But it’s also interesting that income inequality has been essentially bouncing between .44 and .46 since 1987.

Since it’s a Malaysian tradition to break things down in terms of ethnic background, here’s the Gini for each community across the same sample period (click on the pic for a larger version):

More or less the same patterns as for the country as a whole, and the variation isn’t so much that I couldn’t put it down to sampling error alone. Malaysia’s Gini coefficient is generally higher than for any of the major communities, mainly due to extremely high inequality within the smaller communities. This is understandable – we’re talking here about everyone else from foreign professionals to Bangladeshi kitchen workers.

There’s also the question of income disparities between communities, for which data is also available:

No big surprises here – for the most part the average Chinese household has earned more than the average Malaysian household, Bumi households earn less, while Indian households tend to be right on the average. Other communities are all over the place, possibly reflecting the changing composition of foreign immigrant labour.

But the ratios are what most people talk about so I imagine this next chart would be of interest to many:

As of 2009, the average income of Bumi households is within 10% of the Malaysian average, and within 30% of the average of Chinese households. Most of the gains were achieved in the period before 1987, but there’s also been considerable closing of the gap in the last decade. I haven’t yet looked at the data by income stratum (which is actually available), so generalising from this might be premature.

One last chart to show – I matched the income data from EPU with household expenditure data from DOS (released just last month). The expenditure data only covers from the 1993/94 HIS onwards, and there’s only four data points to look at. Again difficult to generalise, but it’s an interesting chart nevertheless:

Mind you, this doesn’t say the cost of living has fallen, just that nominal income growth has exceeded nominal expenditure growth. And the experience by income stratum might well be different, though unfortunately DOS wasn’t kind enough to release that depth of data.

Note that what we’re looking at here is primarily household income and expenditure data. There’s no data on wealth inequality that I know of, which might shed more light on the actual state of things in Malaysia.

Technical Notes:

Household Income and Poverty, Economic Planning Unit, Prime Minister’s Departmentc (accessed 21/9/2011)

Household Expenditure Trend 1993/94-2009/2010 from the Department of Statistics (warning: pdf link) (accessed 21/9/2011)