Different Realities State of Households 2018 15 October 2018 +THE - - PowerPoint PPT Presentation
Different Realities State of Households 2018 15 October 2018 +THE STATE OF HOUSEHOLDS 2018 Background: What is the Economy? Capital, Labour and Productivity are Inputs to create Output or GDP. GDP can be measured by Expenditure, by Sectors or
15 October 2018
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Capital, Labour and Productivity are Inputs to create Output or GDP. GDP can be measured by Expenditure, by Sectors or by Income
Expenditure
Income
Sector
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wages and capital gets profits.
increasing labour quality. How do we improve the quality of labour?
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The economic machine takes Capital and Labour as inputs to produce GDP; Labour receives Wages as reward – how do we increase Wages; how are Wages distributed?
How the Economy Works
Productivity Distribution
higher wages.
drives productivity. How do we increase labour quality?
Source: DOSM, KRI Calculations Note: Data is for 2016 and is in per annum terms; Avg Household Size: 4.2 people
Capital Labour
T20 households take 50% of total income
RM62,736 RM83,496 RM177,184 Median household income Mean household income GDP per household
Profits Wages
Y = = AF( F(K,L) K,L)
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Macro outcomes impact and are impacted by inputs from government policy. Similarly, Government policy both impacts and is impacted by Labour inputs (People).
therefore productivity – of people. The research seeks to influence policies with the
GDP
Macro Outcomes
Ringgit Unemployment Debt Inflation Rate Interest Rates Current Account Balance Fiscal deficit KLCI Index
Government Policy
Industrial Policy Technology Policy Labour Market Education Policy Energy Policy Bumiputera Policy Agriculture Policy Trade Policy Monetary Policy Housing Policy
People Inputs
Agri Smallholders Access to healthcare School- Work Transition Socio-economic mobility Decent Jobs Social Protection Affordable Housing Nutrition Care Work
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Amidst the context of Demography, Science & Tech, and Politics & Geopolitics, KRI undertakes research in 5 areas impacting Growth, Equitability, and Societal Well-Being
the contexts of Demography, Science & Technology, and Politics & Geopolitics.
and Public Health, KRI forms policy insights relevant to Malaysia. Politics and geopolitics Demography Science and technology
Int’l trade Jobs and skills Shelter and cities Food and Agri. Public health
Growth Societal Well- Being Research Areas The Context in which We Operate Impact Areas Equitability
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KRI has published 9 Books, 9 Discussion Papers and various articles since its inception in 2014.
directions, while improving public awareness about crucial policy issues.
Books Discussion Papers
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Housing is a pressing issue for households, with Malaysian homes becoming more unaffordable for most Malaysian people
household debt is for mortgages. Continuing research into Affordable Housing is critical.
formulation of Dasar Perumahan Negara 2.0 with JPN-KPKT.
Making Housing Affordable Key Recommendations:
affordable housing
moratoriums
efficient planning of housing units 2015
2018
Policy Impact: National Housing Policy
in formulating new National Housing Policy 2.0 (DRN 2.0)
housing demand, housing supply, and spatial analysis of the housing market Why Does Affordable Housing Matter? Household loans by purpose, 2017
Source: BNM
57% 18% 8% 8% 4% 5% Mortgage Hire purchase Personal loan Securities purchase Credit card Others Total = RM908 bn
5.1 & Over Severely Unaffordable
KL 5 MALAYSIA 4.4
Johor 5 MALAYSIA 5 KL 4.9 Selangor 4.7
4.1 to 5.0 Seriously Unaffordable
Selangor 3.6 Johor 3.5
3.1 to 4.0 Moderately Unaffordable
Melaka 2.9
Affordable
2007 2.1 2016 3.1 4.1 ≥5.1 Median multiple affordability by state, 2007 & 2016
Source: NAPIC, DOS, and KRI. Only states with 60% or more formal housing surveyed are reported in this chart.
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Trade is an integral part of Malaysia’s long history, since the days of the Langkasuka and Melaka Empires, impacting not just the broader economy, but also everyday lives.
2015 2015 2017
affects daily lives of Malaysians
issues
agreements
issues. KRI’s “Why Trade Matters” reports 2018 Malaysia’s Trade Governance at a Crossroads Malaysia’s trade and investment policies, against the backdrop of changing global trade environment. IO report (2018) Linkages between the input and output sector of the Malaysian economy
linkages between sectors in the economy, aiming to support policymakers in designing trade policy to suit the Malaysian context.
Real GDP, exports and total trade-to-real GDP %
Trade is an Integral Part of Malaysia’s National Income
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20 40 60 80 100 120 140 160 180 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
% RM millions
Real GDP (MYR mn) Exports (MYR) % of total trade/real GDP
2017: RM1,480 bn 2017: RM885 bn 2017: 113%
Source: Dos (2017)
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GDP per capita ≠ Households Incomes Lower income households spend higher % of income Wealth inequality is one consequence of income inequality Growth in salaries < growth in productivity Energy subsidies regressive, favour businesses Inequality is national, and within ethnic groups Many economic sectors rely heavily
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Where it all began: KRI’s first publication sought to provide a data-driven understanding of Malaysian households.
evidence at the microeconomic level on inequality, household incomes, distribution policies and foreign workers.
2014
Monthly Income Distribution in Malaysia (2012) Amount GDP per household RM12,369 Average household income RM5,000 Median household income RM3,636
>50% of households that spend <RM 2,000 a month, use 50% to 70% of total expenses for food, housing and utilities The total savings of the top 17.1k EPF members are greater than that of the entire bottom 44%, (2.8mn members) Productivity has grown nearly 2000x since 1960, while wages grown only around 1600x From ‘95 to ‘02, nominal GDP per capita increased by 6.7% p.a. but median household income increased 5.9% p.a.
400 800 1200 1600 2000 2400
60 70 80 90 00 10
Indexed value (1960=100) Productivity Wages
<24% (RM 5.6bn) of fuel subsidy benefit households while remainder benefits businesses and other entities 26% of ‘Bumi’ households earn below RM 2,000 a month (Chinese: 13%., Indians: 29%) From 1990 to 2010, migrant labour has grown from 380k to 2.1m of the total workforce.
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SOH 1 shifted public discourse regarding household income vs GDP, median vs mean income, and petrol subsidies, among others. 2014 Press Coverage
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SOH II deepened the work of SOH I, with a sharp focus on food prices and the demographic landscape – particularly gender and ageing.
population and the difficulties for our youth in finding decent work – leading to KRI’s
2016
Households are better off
Compared to 2012, median household income has increased from RM 3,626 to RM 4,585 Households earning <RM3k per month have debt levels of 7x annual income. Median salary only RM1,600 per month. In 2015, ~64% of Unemployed are aged 20-29 (1995: ~47%) with many having tertiary quals. 54.1% of women participate in the workforce and this peaks at 87.7% for women with tertiary education Over 2014 and 2015, average food prices grew faster (3.6%) than average CPI (2.6%). We live longer (average life expectancy, 1970: 64 years; 2015: 75 years); birth rates are falling (total fertility rate per woman, 1960: 6; 2015: 2)
But households becoming increasingly indebted Low wages and youth unemployment a concern More women have entered workforce Food prices risen faster than
We are becoming an ageing population
0% 20% 40% 60% 80% 100%
1995 2004 2014
Women’s labour force participation rate by age 1995, 2004, and 2014
HIRE ME
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Press Coverage
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SOH II highlighted the fragility of low-income households in Malaysia touching
2016
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Part 1 — State of Households: Different Realities
We all live in different realities
Part 2 — The Malaysian Workforce: A Changing Landscape
Women and Foreign Workers
Part 3 — Malaysia’s Development Journey: Past, Present and Future
The 61 year view of economic development
Appendices (Online) 3 Technical Notes Companion outputs
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SOH 2018 follows on from SOH II, with a focus on understanding the different realities faced by households across Malaysia
the rich and poor; geographic inequality; undervalued care work. Geographical disparity in household incomes
A T20 household in Kelantan, Perlis or Pahang may be a B40 household in KL Households with income < RM2,000 spent 95%, leaving little savings But the gap between rich and poor continues to widen But domestic work continues to hinder full participation in workforce Number of foreign workers still high at 2.2 million, more than population of 8 individual Malaysian states Households have experienced material improvements alongside the change in Malaysia’s economic structure
B40 households exhaust most
Income inequality has improved More self-employed women The increase in foreign workers is slowing Well-being of households linked to econ. transformation
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Across Malaysia’s states and federal territories, there is significant disparity in household incomes
education) must consider threshold differences across states during implementation.
But across states, it is education levels that are most associated with income disparities. Thresholds for B40,M40 and T20, 2016
26% 20% 26% Population Share 28%
Source: Dos (2017)
The income range for M40
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Median household incomes are lower than mean incomes. Lower-income households spend nearly 60% of income on necessities, limiting their ability to save.
Income inequality persists across states…
RM0 RM4,000 RM8,000 RM12,000 RM16,000
Kuala Lumpur Putrajaya Selangor Labuan Johor Melaka Pulau Pinang Malaysia Terengganu Negeri Sembilan Perlis Sarawak Sabah Perak Pahang Kedah Kelantan
Monthly household gross income by state, Malaysia (2016) Median Mean Percentage monthly spend on goods and services, by income category (2016)
…exacerbated by heavy spending on food and housing
Source: DOSM HIS 2016 Source: DOSM HES 2016, KRI calculations
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Housing & utilities Food at Home Restaurants and hotels Transport Miscellaneous goods and services Communication Clothing and footwear Alcoholic beverages and tobacco Recreation services and culture Health Education
2,000 a month spend 95% of their income and mostly on essentials (60% on Housing and Food). This mean that they have almost no capacity to save and build wealth.
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Gap between T20 and M40/B40 continues to widen; Households below RM 2,000 spent almost 95% of income
that GFC did not reduce gap – compared to 1987 and 1997 crises which did.
leaving them vulnerable with little savings against economic shocks or emergencies.
2000 4000 6000 8000 10000 12000 14000 Top 20% - Bottom 40% Top 20% - Middle 40%
Share of expenditure to household income, 2014 - 2016
94.8 45.0 10 20 30 40 50 60 70 80 90 100 2014 2016
Gap in real mean income between T20 and M40/B40 households
RM, 2016 prices
Source: DOS (2017), World Development Indicators, KRI calculations Source: DOS (2017), KRI Calculations
Gap between T20 and M40/B40 almost doubled compared to two decades ago
‘87 Crisis AFC GFC
%
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Households are stretched, particularly the low-income households. On the other hand, at the Macroeconomic level, Malaysia’s labour share of income is rising. Why is this?
Malaysia
Malaysian Labour income share goes against global trends…
Source: IMF (2017)
30% 35% 40% 45% 50% 0.30 0.35 0.40 0.45 0.50 Gini Coefficient (LHS) Adjusted Labour Income Share (RHS)
Source: DOSM (Various Years), KRI Calculations
…leading to a lower Gini
0% 20% 40% 60% 80% 100% % share of total employment
Agriculture (12%) Construction (9%) Mining (1%) Manufacturing (17%) Services (61%)
Malaysia transitioned towards Services…
Sources: KRI (2017) Employment by sector, 1960 – 2015
14 14 41 44 10 20 30 40 50 60 2005-2010 2011-2016
But what kind of Services?
Modern Private sector services, % of GDP
What does this mean?
Short term: Malaysia growth more inclusive as rewards to labour rise Long term: Growth less reliant on technology, reducing ability to harness innovation and drive productivity growth
1991-2014. This has helped to reduce inequality in Malaysia.
services rather than high-tech sectors. Continuing on this path threatens future growth.
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Industrialisation
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Women’s participation improved, but a large male-female participation gap remains due to women dropping out of the labour force due to household obligations
longer in workforce, but large gender gap remains.
1,510 1,549 69.8 2,564 405.5 176.9 192.6 132.6 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 Men Women Number of Persons (‘000) Retired
Housework
Education Others
Labour force participation rate by sex, 1995-2017 Population outside labour force, by reasons for not seeking work, 2017
83.5 77.2 77.7 44.6 45.5 53.5 10 20 30 40 50 60 70 80 90 100
%
Men Women
Source: CEIC (n.d.) Source: LFS (2017) and KRI estimation
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37.4 23.6 20.5 12.5 8.9 10 20 30 40 50 60 70 80 90 100
%
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Number of foreign workers has risen in past few years, albeit marginally. Presence of foreign workers can have significant adverse impact on low-skilled rural workers.
Malaysians, with one million workers – mostly in rural areas – facing the threat of job displacement and wage suppression.
1,683 1,695 1,826 2,120 2,111 2,127 2,205 2,235 14.1 15.5 3.5 5.5 7.5 9.5 11.5 13.5 15.5 17.5 500 1000 1500 2000 2500
Number of Foreign workers (LHS) Share of foreign workers out of total employed persons (RHS)
%
Foreign workers in Malaysia 2010 - 2017
Source: DOS (various years), KRI’s calculations
802k
Number of foreign workers
Source: DOS (various years), KRI’s calculations
Foreign workers’ intensity, by sector, 2017
Foreign workers – intensive sectors
611k 296k 515k 12k
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Well-being of households intrinsically linked to economic transformation
nature and trend of economic growth since Independence.
diversify our economy to ensure sustained growth in household incomes?
Real GDP and real annual median household income, 1960 – 2016
10,000 20,000 30,000 40,000 50,000 60,000 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Real Median Annual Household Income Real GDP
Real GDP (RM million) Real annual median household income (RM, in 2010 prices)
Commodity-based economy and the start of industrialisation Export-oriented manufacturing economy Diversification and deindustrialisation
Sources: World Bank World Development Indicators
6.7% 8.1% 4.8% 4.7% 4.8% 4.2%
Average GDP CAGR Average household income CAGR
Note: Periods for CAGR calculation - Commodity-based era: 1970- 1984; export-oriented era 1987-1997; diversification era: 1999-2016
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On top of having to achieve greater strides in innovation, human capital, and modern infrastructure, the economy will also face a number of future challenges globally and domestically
Global Challenges Domestic Challenges Technological Disruption Changes in the Economic Landscape Changes to
Biosphere Climate change Ageing population Rapid urbanisation Changing tides of trade Winner-take-all markets A new era of geopolitics Lower returns from past growth strategies Demographic changes Rethinking growth strategies Selected global and domestic challenges in the near future
improve human capital and modernise infrastructure with the ultimate aim of equipping Malaysia’s households to face domestic and global challenges.
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Control of Corruption
For the next phase of Malaysia’s development, we must look beyond economic growth, and focus on strengthening our institutions
Societal well-being doesn’t just require growth, it requires strong national institutions
Score ranges from -2.5 (weak) to 2.5 (strong) governance performance)
strength has declined in the past decade.
strengthening our national institutions.
Source: World Governance Indicators
Social Protection Affordable housing Socio- economic mobility Access to healthcare Reduced Inequalities Economic Growth Quality Education
Strong Institutions
Nutrition No Poverty But, Malaysia’s institutional strength declined in the past decade. This must be reversed.
1.32 1.27
0.32 0.16
0.00 0.50 1.00 1.50 1996-2006 2006-2016 1996-2006 2006-2016 1996-2006 2006-2016 High Income: OECD Upper Middle Income: OECD Malaysia 1.19 1.14
0.00 0.50 1.00 1.50 1996-2006 2006-2016 1996-2006 2006-2016 1996-2006 2006-2016 High Income: OECD Upper Middle Income: OECD Malaysia
Voice and Accountability 24
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Households across Malaysia face very different
into account different income thresholds in different states.
More must be done to improve women’s labour force
significant gap remains. 2.6M women, mostly educated and of prime-working age, stayed out due to household obligations.
Household well-being has improved alongside Malaysia’s economic well-being. As the Malaysian economy
has diversified, our growth rates have increased. Can we continue to diversify our economy to ensure long-term prosperity?
Institutional strengthening is a key component of future
continued development. The reduction in Malaysia’s institutional strength over the past decade must be reversed.
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We have been a middle income country for more than half a century
manufacturing and now de-industrializing), Malaysia has yet to escape the middle income trap, compared to countries like Korea and Taiwan which started from a lower base.
Income group classification for selected countries, 1960 - 2016
Sources: World Bank, Asian Development Bank Note: Country income classification before 1987 follows classification used in Estrada et al (2017), which classifies country income levels using purchasing power parity in constant 2011 dollars from Penn World Tables 9.0. Country income classification post 1987 uses country income classification from the World Bank. Numbers on the right-hand side of the table represent the number of years classified as a middle-income country; bolded numbers indicate that the country has reached a high income status
Developing Asia Latin America 1960s 1970s 1980s 1990s 2000s 2010s China Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Argentina Brazil Chile Colombia Mexico Uruguay Low income country Middle income country High income country Lower-middle income country Upper-middle income country 19 24 22 55 44 27 26 25 41 56 56 52 57 57 51 Years as middle-income country
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Crowded out at the top, pressured from the bottom
Stage 3 have developed large national MNCs. Can Malaysia do so without its own national MNCs amidst highly mobile capital?
Very few countries have historically broken
Escape!
Sources: World Bank, Glawe and Wagner (2016)
…and those that have also limit opportunities for those attempting to break out.
FDI Absorption Internalising Technology Creativity
Full capability in innovation and product design as global leader (Japan, US) Simple manufacturing under foreign guidance (Vietnam) Tech & management mastered, produce high quality goods (Korea, Taiwan) Have supporting industries, but under foreign guidance (Malaysia, Thailand)
Glass ceiling for the Middle-Income Trap
Stage 1 Stage 2 Stage 3 Stage 4
It’s a Trap!
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Reliance on credit to increase living standards among lower-income group
subsequent US QE (~USD3tn) and ECB QE, along with lower BNM rates contributed to higher housing prices, mortgage. Poorer households borrowed for lifestyle quality: >50% of all debt for households earning under RM5,000/month is in vehicle and personal loans.
2008 GFC stimulus: debt hangover Malaysian debt-to-GDP ratios (%) Malaysian stimulus amounted to RM60bn, more than 9% of GDP at the time in 2009.
RMB 4tn
2009-2010 China
USD 800bn
2009-2010 US fisc. stimulus
US QE
RM60bn
2009-2010 Msia fisc. stimulus 2008 GFC stimulus: debt hangover
40% 45% 50% 55% 60%
Sources: CEIC, World Bank, BNM, KRIS estimates
2008 Now
* Includes contingent liabilities, PFI/PPP and gov’t- guaranteed debt. Without these liabilities: 51%
House- holds Gov’t Corp
Vehicles/personal financing Households earning < RM5,000
Sources: BNM Financial Stability and Payment Systems Report, 2015
Private Consumption, % of GDP
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The median is a better measure of central tendency compared to the average when distributions are not symmetrical
INCOME GROUPS
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Average: 5,500 Median: 5,500
Top half of sample In a textbook example of symmetrical income distribution, a group of 20 people would be distributed as seen in Figure 1
1 1 2 4 2 4 2 2 1 1
INCOME GROUPS
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Average: 4,750 Median: 3,500
Bottom half of sample Top half of sample
3 3 4 1 1 2 1 1 2 2
Bottom half of sample However in practice, the distribution of income is
median and average income will not necessarily be equal, as seen in Figure 2 Figure 1 Figure 2 30
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Improvement in our Economic Complexity has slowed since 2000, when we reached
the trade off between inclusivity and productivity?
0.5 1 1.5 2 2.5 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: Observatory of Economic Complexity (various years) Note: Economic Complexity Index (ECI) is based on how diversified and complex their export basket is. Countries that are home to a great diversity of productive know-how, particularly complex specialized know-how, are able to produce a great diversity of sophisticated products.
Economic Complexity Index, by selected country, 1964 - 2016
Singapore China Thailand South Korea Malaysia ECI 31
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Income inequality translates to wealth inequality
reducing the lower-income households’ ability to save.
bulk of savings are held by those at the top of the wealth bracket.
Source: Annual reports for PNB funds ended in FY17 except for ASB2 which is based on FY18 Note: Financial year ends for ASW and ASB2 are 31 August, AS1M is 30 September. Financial Year end for ASB is Dec 31.
PNB EPF (RM557bn) ASB (RM145.9bn) ASB2 (RM9.3bn) ASW (RM18.8bn) AS1M (RM11.8bn)
Source: EPF Annual Report 2017
349,000 Account Holders Top 15% own 93% of Invested Funds 55k Holders have more than remaining 294k Holders 9,300,000 Account Holders Top 8.9% own 80% of Invested Funds 820k Holders have 4x more (RM116.9b) than remaining 8.4mn Holders (RM28.9b) 874,000 Account Holders Top 7.6% own 75% of Invested Funds 66k Holders have more than remaining 807k Holders 394,000 Account Holders Top 10.6% own 79% of Invested Funds 42k Holders have more than remaining 807k Holders 7,100,000 Active Savers Top 13% (RM337k avg) own 47% of Active Savings, 1.4x more than the rest (RM38k) 952k Savers have more than remaining 6.2mn Savers
49 49 49 49 49 49 49 50 51 53 55 57 58 0% 50% 100% Mortgage Hire purchase Personal loan Securities purchase Credit card Others
Mortgages rising as a share of household loans…
Source: BNM
Household loans by purpose
… but most households lack buffers generated by financial assets to support rising debt burden
1 2
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