Demarcating Households An Integrated Income and Consumption Analysis - PowerPoint PPT Presentation

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) Demarcating Households 3. Income as a proxy for well-being measure An Integrated Analysis of Income 4. Consumption as another proxy for and Consumption well-being measure 5. Proposed new demarcation Khazanah Research Institute 6. Conclusion

Questions… 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 - Khazanah Research Institute income status” group; are they the aspirational/“middle -income class” group?

Households and measures of welfare Khazanah Research Institute

Policy target group From “poverty” to “B40” 1971 1971 2002 2002 2006 2006 2009 2009 2011 2011 2016 2016 20 09 9 th MP 10 th MP 11 th MP 2002 2009 NEP (2006-2010) (2011-2015) (1970-1990) (2016-2020) Hardcore A shift from Elevating the Highlighted Absolute poverty • Eradicate poverty down to deterioration of down to 3.8% poverty to B40 B40 to middle- poverty 1.0% the B40’s class society Restructuring • Khazanah Research Institute income share the society 14% (1990) to 13.5% (2004) 5

“Shared prosperity goals” and the “B40” 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 “Shared Prosperity” • It shines a spotlight on the welfare of the The World Bank adopted the “Shared Prosperity” bottom 40% of the population in each goals in 2013 that simultaneously took into account country. the poverty and inequality perspectives: • To achieve these goals successfully, the to end global extreme mean income's growth of the B40 was 1 monitored extensively and poverty by 2030 simultaneously compared to the growth Khazanah Research Institute of average household income. . 2 to promote shared prosperity 6

11 th Malaysia Plan “Uplifting B40 households towards a middle- class society” Targets 2014 2020 Strategies RM RM Double the 1 Raising the income B40’s mean 1 and wealth of B40 RM5,270* income RM 2,537 Addressing the 2 Increase tertiary increasing cost of education 2 living 20.0% attainment 9.0% Enhancing the 3 Khazanah Research Institute delivery system of Increase in the B40 programmes B40’s income 3 20.0% share 9.0% Source: EPU 2015, Eleventh Malaysia Plan *Note: Mean 2016 = RM2,848. Target revised to RM4,430 under MTR-11MP 7

Progress over the years The B40’s income grew at the highest rate during the 10 th and 11 th MP periods B40 households - real monthly mean income growth, 1970-2016 2MP & 3MP 4MP & 5MP 6MP & 7MP 8MP & 9MP 10MP & 11MP 3,000 RM +8.9% CAGR 1970 - 2016 = 4.5% 2,848 2,500 2,645 +2.6% 2,000 2,028 +3.2% 1,687 1,671 1,500 1,489 1,414 +2.6% 1,364 1,258 1,000 1,159 1,012 +5.3% 887 818 779 Khazanah Research Institute 500 600 377 390 462 0 1970 1974 1976 1979 1984 1987 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 Source: HIES 2016, DOS and KRI calculations Note: Compounded annual growth rate (CAGR); based on 2016 prices 8

Progress over the years Income share of B40 has increased, narrowing T20-B40 income gap Income share of B40, M40 and T20, 1970-2016 Income share,% 60 55.7 50 52.4 T20 46.2 40 M40 37.4 34.4 30 32.8 20 B40 16.4 10 Khazanah Research Institute 13.2 11.5 0 1970 1974 1976 1979 1984 1987 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 Source: HIES 2016, DOS and KRI calculations Note: Compounded annual growth rate (CAGR); based on 2016 prices 9

Programmes targeted at the “B40” mySalam Free takaful health protection BR1M and BSH scheme for 36 critical illness and Cash transfers aid to cushion income replacement due to rising cost of living hospitalization Peka B40 Dana rumah mampu Protection plan for health screenings, transport cost, milik (BNM) medical devices aid and RM1bil fund to finance the incentives for completing purchase of first home NCDs/cancer treatments for B40 recipients aged 50 SBP and MARA Targeted fuel subsidy Khazanah Research Institute Admission quota to full boarding RON95 subsidy at RM0.30 per litre schools (SBP) and MARA Junior • up to 100 litres for a car Science College (MRSM) to • up to 40 litres for a motorcycle benefit the B40 and M40 groups Non-exhaustive 10

Characteristics of B40 Khazanah Research Institute

Over 60% of the B40 were living above the relative poverty line income * Sub-groups within the B40 households, 2014 Monthly household income (RM) 4,582 Median monthly income B40 income threshold 3,852 62.2 % 2,291 Relative poor (below half of median income) Bottom Middle 2014 Top 20% Overall 40% 40% Mean 2,563 5,660 14,207 6,190 36.2% Median 2,671 5,458 11,552 4,582 Khazanah Research Institute Income Below 3,852 – 8,320 and threshold 3,852 8,319 above 930 Absolute poor (below PLI) 1.4% 465 Hardcore poor (below half PLI) Source: HIES 2014, DOS and KRI calculations 0.2 % *Defined as half of median income 12

Two- thirds of the nation’s B40 households came from six states. In eight states, the B40 group dominated half of the total households Share of B40 by state and Percentage of B40, M40 and T20 urban/rural proportion, 2014* by state, 2014 Perak 13.1 31.0 69.0 58.2 33.0 8.8 12.3 15.2 84.8 Selangor 22.3 43.0 34.8 11.2 58.0 42.0 Sarawak 51.2 36.0 12.8 64.0% Kedah 9.8 37.7 62.3 56.2 33.0 10.8 Sabah 9.1 48.8 51.2 51.7 35.4 12.9 8.5 58.6 41.4 Kelantan 69.3 22.9 7.7 8.5 32.5 67.5 Johor 28.0 53.1 18.9 7.0 51.7 48.3 Pahang 57.8 32.3 9.9 Pulau Pinang 5.7 90.7 36.8 46.7 16.5 4.5 43.7 56.3 Terengganu 52.1 36.6 11.4 Khazanah Research Institute 4.1 39.0 61.0 Negeri Sembilan 45.1 41.0 13.9 2.5 87.6 Melaka 32.1 52.3 15.6 Kuala Lumpur 2.4 100.0 14.5 41.0 44.6 1.2 Perlis 56.5 34.5 9.0 0.2 Labuan 29.5 41.6 28.9 Source: HIES 2014, DOS and KRI calculations 0.1 Putrajaya 8.2 50.6 41.2 *Note: Based on the national income threshold for the B40 in 2014 i.e. earning RM3,852 and Urban % Rural % below per month B40 % M40 % T20 % 13

Majority of the B40 households were provided by a single income recipient in contrast to the M40 and T20 Percentage of households, by number of Percentage of households, by number of working household members, 2014 income recipients, 2014 Average: 1.4 Average: 1.9 Average: 2.2 Average: 1.2 Average: 1.8 Average: 2.0 1.1 100% 100% 3.9 4.8 4 and 6.0 9.2 5.6 4 and 10.9 above 90% above 90% 12.4 14.6 24.4 15.8 3 80% 80% 18.1 29.1 3 70% 70% 41.8 60% 60% 44.4 50% 50% 50.4 2 49.4 2 59.1 40% 40% 64.3 30% 30% Khazanah Research Institute 38.6 20% 20% 35.0 1 23.8 21.6 10% 10% 1 No working 12.1 2.6 member 0% 0.7 0% B40 M40 T20 B40 M40 T20 Source: HIES 2014, DOS and KRI calculations Source: HIES 2014, DOS and KRI calculations 14

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 Percentage of households’ sources of income, by income group, 2014 100% Current transfers received 3.5 8.7 Income from property and investment* 11.1 19.3 90% 11.0 80% Income from self-employment 15.1 12.8 14.9 70% 60% 19.9 50% 40% Income from paid employment 70.1 Khazanah Research Institute 65.6 30% 47.9 20% 10% 0% B40 M40 T20 Source: HIES 2014, DOS and KRI calculations 15

Households headed by elderly and women were more prevalent among the B40 group Percentage of households Percentage of households, Percentage of households, by age headed by female, by marital by gender of household group of household heads, 2014 status, 2014 heads, 2014 Average age: Average age: Average age: 43 years 40 years 41 years 100% 100% 10.4 Female 13.2 19.7 8.7 60 and Widowed/ 10.7 90% 19.4 30.2 90% above Divorced 23.0 80% 80% 50.9 70% 70% Never 43.0 60% been 60% 34.7 married 30 - 59 50% 50% 79.0 86.4 89.6 86.8 65.8 40% 80.6 22.0 40% 30% 30% Male 20% Married 20% 37.3 35.1 27.1 Khazanah Research Institute 10% 10% Below 30 11.2 10.3 4.9 0% 0% B40 M40 T20 B40 M40 T20 B40 M40 T20 Source: HIES 2014, DOS and KRI calculations 16