Inequality in Malaysia: Empirical Questions, Structural Changes, Gender Aspects.

• Author: Lee, Hwok-Aun

1. Inequality in Malaysia: Recent Trends and Policy Stances

   Malaysia is generally regarded a success story in reducing income inequality, especially between ethnic groups, while sustaining growth and eradicating poverty over the long term. In recent years, the country has also increased attention to national inequality--particularly, by emphasizing the poorest 40 per cent of households (or B40, for "Bottom 40") as beneficiaries of more inclusive economic growth and social policy, and by addressing gender disparities in opportunity, participation and mobility. The policy priority is premised on an assessment that inequality has remained high, that the lower income segments are being left behind, and that women face barriers to equal participation and remuneration. Popular discourses on inequality in Malaysia have also, for the past decade and into the present, maintained a broad consensus that inequality has increased, or at least stayed high--with particular emphasis on class-based disparities within ethnic groups. Such diagnoses and outlooks draw on the structural features of Malaysia's political economy, anecdotal observations and public perceptions: masses struggling to cope with cost of living while the fortunes of the elites appear to be burgeoning; concentration of the benefits of growth at the top alongside sluggish employment conditions; and real wage stagnation for the working classes.

   Official statistics, however, indicate quite the opposite. The government's calculation of Malaysia's household income Gini coefficient, based on national survey data, has registered a declining trend from 2004 to 2016, far in excess of regional neighbours and even global comparator countries. This is on the back of rapid income growth for the bottom 40 per cent and slower rates of increase for the top 20 per cent. Intra-ethnic inequality has reached all-time lows. Furthermore, inequality drops precipitously in a few intervals, but these intervals do not correspond with momentous shocks, structural changes or policy reforms that can explain the findings. An exploration of other data sources suggests that in other dimensions of inequality, personal earnings inequality in particular, has remained high, with distribution persistently concentrated in the uppermost strata. Wage growth in skilled occupations has slowed, and the wages of low-skilled occupations have been boosted, but again, these changes do not concur with the official accounts of exceedingly high-income growth for B40 households. Official statistics also show minimal gender wage disparity when observing the highly aggregated national average, but upon closer investigation the male-female gaps vary based on occupation and age categories.

   In this paper, the official account of declining household income inequality is referenced and juxtaposed against empirical evidence from other sources, particularly in the realm of earnings--where gender inequality can also be assessed. The study also provides an overview and critical evaluation of Malaysia's policies geared towards reducing household income inequality, redressing exclusion of low-income households, and narrowing gender gaps, and considers whether the observed patterns correspond with economic structural changes and policy measures.

   In the last section, the paper unpacks the gender wage gap against a backdrop of broad improvements in women's labour force participation and occupational advancement. Despite gender inequality being on the development agenda for many decades--reinforced recently in the 2019 Budget Speech and the Mid-term Review of the Eleventh Malaysia Plan (MTR 11 MP)--the focus and strategies have always been skewed towards women's participation in the workforce without strong links with the gender wage gap and overall inequality discourse (MOF 2018; Malaysia 2018). The attention is refocused on gender aspects of wage inequality, with particular attention to the effects of occupational, life cycle and nonmarket activities on women's wages.

   On the whole, the study finds inequality patterns mat arguably correspond with structural changes in the economy and labour markets, but markedly differ from the official accounts. These two versions derive from data sources mat overlap but are not fully comparable, but this analysis finds more grounds to believe that inequality has moderately changed. Wage-based indicators and data indicate moderate changes in inequality, which is difficult to reconcile with the official steep drop in gross household income inequality. The results also reveal that gender inequalities remain salient, despite a narrow national wage gap. Redressing inequality between groups, including emnicity and gender, will require continual, and more systematic, policy responses.

2. Inequality over Time: Varying Trends, Cloudy Views

   The importance of empirical evidence has grown in the current milieu of acute awareness of income and wealth distribution and heightened sentiment especially towards widening inequality. The pattern of inequality in Malaysia in the past three decades marks out two or three periods, depending on the spatial and group-based dimension being observed. The official record of household income inequality, calculated from the household income survey (HIS), provides a consistent data source since 1984 (Figure 1). It should be noted, however, that the Gini coefficient and other inequality indicators prior to 1989 comprised both citizens and non-citizens, but from 1989 onwards includes only Malaysians. The 1980s saw declining inequality, a trend that would arguably hold even if the computation was limited to citizens. While not extensively researched, Malaysia's track record of reduced inequality in the 1980s is generally accepted, concurring as it does with structural changes corresponding with this distributional trend. Urbanization and industrialization spurred mass employment especially in labour-intensive manufacturing and, alongside middle-class expansion, plausibly accounted for the steady decline in inequality.

   Inequality drew substantially more attention in the 1990s, prompted by the reversal of the preceding downward trend. The Gini coefficient of household income increased between 1989 and 1993, and was sustained at a relatively high level until 1997. Various arguments were forwarded in the literature, deducing plausible explanations for this trend in the national Gini--without further information nor access to microdata (Mat Zin 2008; Ariff 2008; Shari 2000). In the labour market, the benefits of the economic boom were accruing disproportionately to skilled workers, while wage growth for the masses was contained due to influxes of low-skilled migrant labour, and gaps widened between rapidly growing and more technologically advanced manufacturing versus a rather sluggish agriculture sector. Political economy interpretations broadly surmised that professionals and managers, and capitalists and political-business elites, were best poised to capture rents from the roaring 1990s--a viewpoint consistent with the steady rise in inequality within the bumiputra population (Figure 2).

   Unfortunately, disaggregated inequality indicators were only disseminated decades later, which raise some questions over the above interpretations. The Gini coefficient within urban areas follows a distinct, and strikingly linear, descent from 1989 to 1997 (Figure 1). Many of the explanations for rising inequality derive from structural changes and political economic reconfigurations centred on urban economies. Rising inequality within rural areas from 1992 to 1997 also bypassed contemporaneous attention, and remain difficult to explicate in retrospect. Nevertheless, the inequality uptrend observed in the national Gini was perceivably validated by drawing on broader, sometimes anecdotal, assessments of distributional dynamics in Malaysia, and referring to public consciousness of economic hardship--more acute among low-income households--and conspicuous consumption and wealth accumulation at the top.

   This widely shared perception of rising inequality, and the underlying notion that the lower reaches of society were excluded from the benefits of economic growth, persisted into the next decade, although with scant mention in academic and policy literature in the 2000s. The "New Economic Model" (NEM) launched in 2010, aiming to chart a new policy course for Malaysia, declared the B40 as a policy priority, on the grounds of relative exclusion from the growth process: "Household income surveys suggest that income growth has been strong only for the top 20 per cent of Malaysian income earners. The bottom 40 per cent of households have experienced the slowest growth of average income, earning less than RM 1,500 per month in 2008" (NEAC 2010). Perplexingly, this assessment ran directly contrary to official statistics showing faster income growth for the B40. From 2004 to 2009, real household income of the B40 actually exceeded that of the Middle 40 and Top 20 (Figure 3).

   Subsequent to the NEM, Malaysia adopted a policy stance that made national inequality a priority, with a focus on the B40. Previously, inter-ethnic inequality received the bulk of attention. However, disconnects persisted between empirical evidence and policy analyses, as well as public perception. The 2010s, after the Global Financial Crisis, has been a decade of pronounced awareness of inequality in Malaysia, as in most of the world. Calculations of income and wealth disparity have flourished, showing rising inequality around the globe--especially runaway growth at the very top and accumulation among the already rich (Atkinson, Piketty and Saez 2011; Piketty 2014; Oxfam 2017).

   FIGURE 3 Real Annual Average Growth of Gross Household Income, by Income Bracket, 1989-2016 Bottom 40% Middle 40% Top 20% 1989-1997 5.9% 6.7% 7.5% 1997-2004 1.3% 1.4% 0.7% 2004-2009 2.6% 1.9% 0.8% 2009-2012 6.5% 5.8% 4.6% 2012-2016 9.1% 6.8%...