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Demarcating Households An Integrated Income and Consumption Analysis Hawati Abdul Hamid Gregory Ho Wai Son Dr Suraya Ismail 23 September 2019 CONTENTS 1. Households and measures of economic well-being 2. The bottom 40% households (B40)
Hawati Abdul Hamid Gregory Ho Wai Son Dr Suraya Ismail
23 September 2019
An Integrated Income and Consumption Analysis
Khazanah Research Institute
well-being
An Integrated Analysis of Income and Consumption
well-being measure
CONTENTS
measure
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1. Is the present B40, M40 and T20 demarcation useful in classifying households according to their economic well-being? 2. Are the “B40” households homogeneous? Is it justifiable to equate the B40 as being “poor” and consequently, as a target group for government policies and assistance? 3. Do the “M40” households demonstrate characteristics of a “middle- income status” group; are they the aspirational/“middle-income class” group?
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Policy target group
From “poverty” to “B40”
5 NEP (1970-1990)
poverty
the society
2002
Hardcore poverty down to 1.0%
9th MP (2006-2010)
Highlighted deterioration of the B40’s income share 14% (1990) to 13.5% (2004)
20 09
11th MP (2016-2020)
Elevating the B40 to middle- class society
1971 1971 2002 2002 2006 2006 2009 2009 2011 2011 2016 2016 2009
Absolute poverty down to 3.8%
10th MP (2011-2015)
A shift from poverty to B40
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“Shared prosperity goals” and the “B40”
6 The World Bank began to adopt the relative concept in the 1970s, noting that:
“The poorest 40% in developing countries were living in absolute poverty “degraded by disease, illiteracy, malnutrition, and squalor”.
The Nairobi speech 1973 - Robert McNamara, President World Bank Group
The World Bank adopted the “Shared Prosperity” goals in 2013 that simultaneously took into account the poverty and inequality perspectives:
“Shared Prosperity”
bottom 40% of the population in each country.
mean income's growth of the B40 was monitored extensively and simultaneously compared to the growth
.
to end global extreme poverty by 2030
1
to promote shared prosperity
2
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Raising the income and wealth of B40
11th Malaysia Plan
“Uplifting B40 households towards a middle-class society”
7
Targets Strategies 2014 2020
Double the B40’s mean income
2
Increase tertiary education attainment
3
Increase in the B40’s income share
1
RM5,270* RM 2,537 RM RM 20.0% 9.0% 20.0% 9.0%
1
Addressing the increasing cost of living Enhancing the delivery system of B40 programmes
2 3
Source: EPU 2015, Eleventh Malaysia Plan *Note: Mean 2016 = RM2,848. Target revised to RM4,430 under MTR-11MP
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377 390 462 600 779 818 887 1,012 1,159 1,364 1,258 1,414 1,489 1,671 1,687 2,028 2,645 2,848 500 1,000 1,500 2,000 2,500 3,000 1970 1974 1976 1979 1984 1987 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 +2.6% +3.2% +2.6%
2MP & 3MP 4MP & 5MP 6MP & 7MP 8MP & 9MP
+5.3% +8.9%
10MP & 11MP
CAGR 1970 - 2016 = 4.5% RM
8
Source: HIES 2016, DOS and KRI calculations Note: Compounded annual growth rate (CAGR); based on 2016 prices
B40 households - real monthly mean income growth, 1970-2016
Progress over the years
during the 10th and 11th MP periods
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Progress over the years
Income share of B40 has increased, narrowing T20-B40 income gap
9
Source: HIES 2016, DOS and KRI calculations Note: Compounded annual growth rate (CAGR); based on 2016 prices
Income share of B40, M40 and T20, 1970-2016 55.7 52.4 46.2 32.8 34.4 37.4 11.5 13.2 16.4 10 20 30 40 50 60 1970 1974 1976 1979 1984 1987 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 Income share,% M40 B40 T20
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Programmes targeted at the “B40”
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Non-exhaustive
Targeted fuel subsidy
RON95 subsidy at RM0.30 per litre
mySalam
Free takaful health protection scheme for 36 critical illness and income replacement due to hospitalization
Peka B40
Protection plan for health screenings, transport cost, medical devices aid and incentives for completing NCDs/cancer treatments for B40 recipients aged 50
SBP and MARA
Admission quota to full boarding schools (SBP) and MARA Junior Science College (MRSM) to benefit the B40 and M40 groups
Dana rumah mampu milik (BNM)
RM1bil fund to finance the purchase of first home
BR1M and BSH
Cash transfers aid to cushion rising cost of living
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Source: HIES 2014, DOS and KRI calculations *Defined as half of median income
Sub-groups within the B40 households, 2014
0.2 % 1.4% 36.2% 62.2 %
Monthly household income (RM) Hardcore poor (below half PLI) Absolute poor (below PLI) Relative poor (below half of median income) B40 income threshold Median monthly income 4,582 3,852 2,291 465 930
Over 60% of the B40 were living above the relative poverty line income*
2014 Bottom 40% Middle 40% Top 20% Overall
Mean 2,563 5,660 14,207 6,190 Median 2,671 5,458 11,552 4,582 Income threshold Below 3,852 3,852 – 8,319 8,320 and above
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Two-thirds of the nation’s B40 households came from six states. In eight states, the B40 group dominated half of the total households
13 Share of B40 by state and urban/rural proportion, 2014* Percentage of B40, M40 and T20 by state, 2014
69.0 84.8 42.0 62.3 51.2 41.4 67.5 48.3 90.7 56.3 61.0 87.6 100.0 31.0 15.2 58.0 37.7 48.8 58.6 32.5 51.7 43.7 39.0 13.1 12.3 11.2 9.8 9.1 8.5 8.5 7.0 5.7 4.5 4.1 2.5 2.4 1.2 0.2 0.1 Perak Selangor Sarawak Kedah Sabah Kelantan Johor Pahang Pulau Pinang Terengganu Negeri Sembilan Melaka Kuala Lumpur Perlis Labuan Putrajaya Urban % Rural % 58.2 22.3 51.2 56.2 51.7 69.3 28.0 57.8 36.8 52.1 45.1 32.1 14.5 56.5 29.5 8.2 33.0 43.0 36.0 33.0 35.4 22.9 53.1 32.3 46.7 36.6 41.0 52.3 41.0 34.5 41.6 50.6 8.8 34.8 12.8 10.8 12.9 7.7 18.9 9.9 16.5 11.4 13.9 15.6 44.6 9.0 28.9 41.2 B40 % M40 % T20 % 64.0%
Source: HIES 2014, DOS and KRI calculations *Note: Based on the national income threshold for the B40 in 2014 i.e. earning RM3,852 and below per month
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Percentage of households, by number of income recipients, 2014
Majority of the B40 households were provided by a single income recipient in contrast to the M40 and T20
14
Source: HIES 2014, DOS and KRI calculations
Percentage of households, by number of working household members, 2014
64.3 35.0 21.6 29.1 44.4 49.4 5.6 14.6 18.1 1.1 6.0 10.9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20 Average: 1.4 Average: 1.9 1 2 3 4 and above Average: 2.2 12.1 2.6 0.7 59.1 38.6 23.8 24.4 41.8 50.4 3.9 12.4 15.8 4.8 9.2 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20 Average: 1.2 Average: 1.8 No working member 1 2 3 4 and above Average: 2.0
Source: HIES 2014, DOS and KRI calculations
Khazanah Research Institute 47.9 65.6 70.1 19.9 14.9 15.1 12.8 11.0 11.1 19.3 8.7 3.5 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20 Income from paid employment Current transfers received Income from property and investment* Income from self-employment
A greater proportion of the B40’s income was from self- employment and transfers. Income from property was largely in the form of imputed rents
15
Source: HIES 2014, DOS and KRI calculations
Percentage of households’ sources of income, by income group, 2014
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Households headed by elderly and women were more prevalent among the B40 group
Percentage of households, by age group of household heads, 2014
Source: HIES 2014, DOS and KRI calculations
Percentage of households, by gender of household heads, 2014 Percentage of households headed by female, by marital status, 2014 16
11.2 10.3 4.9 65.8 79.0 86.4 23.0 10.7 8.7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20 Average age: 43 years Average age: 40 years Below 30 60 and above 30 - 59 Average age: 41 years 80.6 86.8 89.6 19.4 13.2 10.4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20 Male Female 27.1 35.1 37.3 22.0 34.7 43.0 50.9 30.2 19.7 B40 M40 T20 Never been married Widowed/ Divorced Married
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The B40’s heads of households typically held lower educational qualifications and were employed in lower-skilled jobs
17 Percentage of households, by educational attainment of household heads, 2014 Percentage of households, by occupational skill level of household heads, 2014
Source: HIES 2014, DOS and KRI calculations
31.4 12.5 4.4 59.4 58.9 31.3 9.2 28.5 64.2 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20 Primary & no formal education Secondary Post-secondary & tertiary 25.5 10.0 2.8 65.5 55.3 23.8 9.0 34.7 73.5 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20 Low-skilled and not working Semi-skilled Skilled
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The B40 households were heterogenous. The characteristics were even more distinct among the B20 group and even more so among the B10
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RM 1
Reliant on single income recipient Lower educational qualifications, employed in lower skill jobs with lesser earning potentials Consume most of the income, implying lack
Prevalence in the urban areas as urbanisation process continues Demographic factors (e.g. age, gender) may influence household incomes Can be further categorised into several income subgroups.
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Target segments in the 11th MP
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Source: EPU 2015, 11th Malaysia Plan
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Intersections of B40 target with other categorical segments
Source: HIES 2014, DOS and KRI calculations
45.0% 63.1% 51.3% 69.1% 60.5% 68.0%
41.6% 36.9%
48.7%
55.0% 39.5% 32.0% 30.9%
Households with one income recipient
Total 2.9 mil
Households headed by female
Total 1.0 mil
Household headed by individuals with primary & no formal education
Total 1.2 mil
Households in urban areas
Total 2.7 mil
Households headed by individuals with low-skilled jobs & not working
Total 981K
Bumiputera households
Total 4.4 mil
Households headed by elderly (>60 y.o)
Total 1.01 mil
58.4% 100%
Households in absolute poverty
Total 41.5K Total Households = 6.7 mil 2.7 mil households
(515.8k) (612k) (834.5k) (1.68k) (67.8k) (4.36mil) (1.7mil)
20
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Income as a proxy for well-being measure
definitions
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Household income is beyond salaries and wages
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Non-production income (transfer received) Production income
vs
In-kind income Money income
vs
Net income (post-tax) Gross income (pre-tax)
vs
Gross income Production income Current transfers received Net income Gross income Current transfers paid Production income Employment income Property income Income from production for own consumption* Money income Production income Other payments received in-kind
*E.g. vegetables, fruits etc. for own consumption, imputed rent (for households living in own dwelling)
Monetary
Income from production for
Non-monetary
Concept of income Components of income
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1.8 12.3 17.8 18.3 1.4 9.9 12.6 18.3
2 4 6 8 10 12 14 16 18 20
RM1,000 or less 1,000 - 1,999 2,000 - 2,999 3,000 - 3,999 4,000 - 4,999 5,000 - 5,999 6,000 - 6,999 7,000 - 7,999 8,000 - 8,999 9,000 - 9,999 10,000 - 10,999 11,000 - 11,999 12,000 - 12,999 13,000 - 13,999 14,000 - 14,999 RM15,000 and above
Percentage of household Income group
% Net Income Gross Income
Median net income = RM3,991
23
Source: HIES 2014, DOS and KRI calculations
Household income distribution, 2014
Median gross income = RM4,582 Mean gross income = RM6,190 Mean net income = RM5,286
Taxation and transfers have resulted in a more equal income distribution
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However, income distribution became more unequal when only production income was considered, and imputed rent was excluded
24 Mean & median income, and Gini coefficient, 2014
6,190 5,286 5,715 5,544 4,582 3,991 4,165 4,065
0.403 0.386 0.445 0.417 0.250 0.270 0.290 0.310 0.330 0.350 0.370 0.390 0.410 0.430 0.450 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Gross income Net income Production income Money income Mean (RM) Median (RM) Gini [RHS]
Source: HIES 2014, DOS and KRI calculations
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Income as a proxy for well-being measure
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Income distribution varies significantly across states. Income thresholds of only few states such as Pulau Pinang and Negeri Sembilan hovered ±3.0% or ±RM500 around the national threshold
26 State-level income thresholds for B40, M40 and T20, 2014 (RM)
Statefffff B40 M40 T20 Putrajaya < 6,447 6,447 – 11,005 ≥ 11,005 Kuala Lumpur < 6,361 6,361 – 13,780 ≥ 13,780 Selangor < 5,279 5,279 –11,674 ≥ 11,674 Labuan < 4,699 4,699 – 10,338 ≥ 10,338 Johor < 4,582 4,582 – 8,169 ≥ 8,169 Melaka < 4,339 4,339 – 7,811 ≥ 7,811 Pulau Pinang < 4,066 4,066 – 7,635 ≥ 7,635 National < 3,852 3,852 – 8,319 ≥ 8,320 Negeri Sembilan < 3,568 3,568 – 7,097 ≥ 7,097 Terengganu < 3,316 3,316 – 6,430 ≥ 6,430 Sarawak < 3,160 3,160 – 6,840 ≥ 6,840 Sabah < 3,146 3,146 – 6,911 ≥ 6,911 Perlis < 3,087 3,087 – 5,876 ≥ 5,876 Perak < 3,086 3,086 – 5,826 ≥ 5,826 Kedah < 3,045 3,045 – 6,203 ≥ 6,203 Pahang < 2,993 2,993 – 5,992 ≥ 5,992 Kelantan < 2,348 2,348 – 4,955 ≥ 4,955
Source: HIES 2014, DOS and KRI calculations
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The total number of B40 households was similar either following the national or state-level thresholds. However, the share of each state was not the same.
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13.1 9.0 12.3 22.0 11.2 8.7 9.8 7.0 9.1 7.0 8.5 4.9 8.5 12.1 7.0 4.8 5.7 6.2 4.5 3.4 4.1 3.7 2.5 3.1 2.4 6.6 1.2 0.8 0.2 0.3 0.1 0.4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% National threshold State-level threshold Total = 2,658,224 Total = 2,660,496 Perak Selangor Sarawak Kedah Sabah Kelantan Johor Pahang Pulang Pinang Terengganu Negeri Sembilan Melaka Kuala Lumpur Perlis Labuan Putrajaya
Share of B40 households by state based on the national and state-level thresholds, 2014
Source: HIES 2014, DOS and KRI calculations
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Income as a proxy for well-being measure
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10-person household
Monthly income = RM10,000
2-person household
Monthly income = RM10,000
Both categorised as T20
Household income Per Capita Income
Per capita income discounts the effect of economies of scale rising from living together
10-person household 2-person household
Categories are dependent on household size
Income per capita = RM1,000
B40
Income per capita = RM5,000
M40
Income per capita = RM1,000
B40 T20 T20
Comparison of economic welfare based on total household income is often tricky due to differences in household size and composition
Monthly income = RM2,000
B40
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Equivalence scale for Malaysian households
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Illustrations: How much additional expense / income is required to accommodate additional household member(s) while maintaining the same living standard?
1 Adult
1st Adult - RM 1,000
ES = 1.0
2 Adults
1st Adult - RM 1,000 2nd Adult - RM 610
ES = 1.0 + 0.61 =1.61
2 Adults & 2 Children
1st Adult - RM 1,000 2nd Adult - RM 610 1st Teenager - RM 590 1st Infant - RM 560
ES = 1.0 + 0.61 +0.59 + 0.56 =2.76
Scenario 1 Scenario 2 Scenario 3
Source: HIES 2014, DOS and KRI calculations Note: The equivalence scale (ES) values were estimated using the Working-Lesser Model. Regression analysis is carried out separately for each state and by urban and rural areas Each household—at different state and urban/rural area, and of different size and composition—has its own scale.
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Visualising equivalence scale and equivalence income
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Upon income adjustment, 20% of B40 households had moved up to M40 group, while 20% of the M40 had moved down to B40 group
32 KRI-estimated scale
80.2 19.7 19.7 69.6 21.3 10.8 78.4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B40 M40 T20
M40 T20 B40
Percentage of household after adjusting income Unadjusted income group
Source: HIES 2014, DOS and KRI calculations *The households’ ranking effects were found to be similar with the results based on OECD-modified scale
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Stylised facts on Consumption – Those at the bottom and at the top are not consuming the same things.
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31.6 28.5 26.5 24.4 23.2 21.7 20.3 18.5 16.6 12.8 28.6 24.4 23.4 22.8 22.4 22.1 21.9 21.9 22.9 25.5 8.4 11.4 12.4 13.3 13.7 14.2 14.5 15.0 15.2 15.3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Bottom 10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 Top 10 Household equipment Clothing & footwear Food Housing Alcoholic beverages Communication Recreation services & culture Transport Health Education Restaurants & hotels Miscellaneous goods & services B40 M40 T20
Source: HIES 2014, DOS and KRI calculations
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Who you are Where you are What you can buy What if you work in KL earning an income of RM10,000, but could only spend it buying items available in the Yanomamo economy?
Material wellbeing is less about how much money you have, but more about what you buy with your money.
KUALA LUMPUR YANOMAMO
Malaysian worker with RM10,000 income
Source: Adapted from Beinhocker (2006)
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What happens when households become richer?
0-10%
0-10%
10-20%
10-20%
20-30%
20-30%
30-40%
30-40%
40-50%
40-50%
50-60%
50-60%
60-70%
60-70%
70-80%
70-80%
80-90%
80-90%
90-100%
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1. the number of black nodes increases. 2. Black nodes occupy different positions in the Expenditure Space
Bottom 10 10 – 20 20 – 30 30 – 40 40 – 50 50 – 60 60 – 70 70 – 80 80 – 90 Top 10
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The basis for grouping nodes together
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Product bundles reveal different well-being levels
51
Equivalized Income
Group 1 Consumed by households at the bottom Group 2 Consumed by households in the middle Group 3 Consumed by households at the top
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Putting Consumption & Community Dynamics together
53
EI
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19.1% 5.4% 16.3% 21.3% 4.8% 6.2% 12.3% 9.3% 5.4%
Meeting Basic Needs Affluent Consuming basic needs Experiencing a spectrum of trade-offs/Well-being I Experiencing a spectrum of trade-offs/Well-being II Aspirational Consumption EI = 1,050 EI = 1,196 EI = 1,637 EI = 2,399 EI = 2,638 EI = 3,015 EI =4,155 EI =6,730
Note: EI refers to equivalised monthly household income
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Note: GI refers to gross monthly household income EI refers to equivalised monthly household income
Proposed demarcation (HIES 2014) RM3,301 RM1,926 RM1,196
Basic Needs A Spectrum of Trade-offs/Well-being Aspirational Consumption
Bottom 40% Middle 40% Top 20%
GI = RM3,852 GI = RM8,352
Poor 0.4%
Low income 14.7% Lower-middle income 34.9% Upper-middle income 33.2% High-income 16.8% GI = RM2,291 GI = RM9,164 GI = RM930 GI = RM4,582
11MP definition (HIES 2014) MTR-11MP definition (HIES 2014) RM8,321 RM4,854 RM3,015
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Proposed Demarcations expressed as Gross Income
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1st quartile Median 3rd quartile Reference household (Equivalised income) Basic Needs: Poor 1,050 1,665 2,638 Consume a Spectrum of Tradeoffs/ Wellbeing I 1,196 1,894 3,015 Consume a Spectrum of Tradeoffs/ Wellbeing II 1,637 2,566 4,155 Aspirational Consumption 2,399 4,022 6,780 2-adult household (Gross income) Basic Needs: Poor 1,690 2,680 4,248 Consume a Spectrum of Tradeoffs/ Wellbeing I 1,926 3,050 4,854 Consume a Spectrum of Tradeoffs/ Wellbeing II 2,636 4,131 6,689 Aspirational Consumption 3,863 6,475 10,915 2-adult 2-children household* (Gross income) Basic Needs: Poor 2,898 4,595 7,281 Consume a Spectrum of Tradeoffs/ Wellbeing I 3,301 5,227 8,321 Consume a Spectrum of Tradeoffs/ Wellbeing II 4,518 7,082 11,468 Aspirational Consumption 6,621 11,101 18,713
Source: HIES 2014, DOS and KRI calculations * Note: 2A2C household assumes 1 child between 7-12 and another below 7 years of age.
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The basis of household classifications can be further refined through:
Findings from our study indicate that:
20%, with equivalised income of below RM1,196.
30%, with equivalised income of above RM3,015.
and RM3,015, appeared to be remarkably similar and exhibited trade-off in their consumption patterns.
The distinct household characteristics in the bottom 20%, and the similarities found amongst the middle 50% suggest that government social policies matter to households beyond the B40 group. These findings however entail different approaches in policy prescriptions: 1. Direct welfare assistance should be confined to the most vulnerable or neediest group (the B20) 2. Economic empowerment and widening the access to opportunities is required to assist households in the middle achieve higher living standards (the M50).
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