Welfare in Malaysia Across Three Decades The State of Households - - PowerPoint PPT Presentation

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Welfare in Malaysia Across Three Decades The State of Households - - PowerPoint PPT Presentation

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Welfare in Malaysia Across Three Decades The State of Households 2020 Part I 13 th October 2020 + Welfare in Malaysia Across Three Decades Progress over the last three decades has been significant Gross Domestic Product Monthly Household

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Welfare in Malaysia Across Three Decades

The State of Households 2020 Part I

13th October 2020

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Khazanah Research Institute

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Progress over the last three decades has been significant

Welfare in Malaysia Across Three Decades

Gross Domestic Product

0.3

1.5

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 GDP

2,580 1,801 7,901 5,873

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Mean income Median income

16.5* 5.6**

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 Absolute poverty rate

0.3 1.5 1989 2019 Monthly Household Income Absolute Poverty

RM1.6tr RM9,000 18%

Note: Data expressed in 2019 prices. Source: DOS (2020b) and KRI Calculations

* 2005 PLI ** 2020 PLI 0.2%*

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  • 1. Moderating household

income growth, slowing economy

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+ AAGR Mean income: 7.1% Adjusted income: 6.7% Gini: 0.5% Mean income: 5.0% Adjusted income: 5.8% Gini: -1.0% Mean income: 3.0% Adjusted income: 3.1% Gini: 0.0%

Over the three decades, the rate of growth in household incomes moderated

Welfare in Malaysia Across Three Decades

Real gross mean and inequality-adjusted monthly household income, and Gini coefficient, 1989–2019

Note: Data expressed in 2019 prices. AAGR stands for average annual growth rate. Adjusted household income refers to mean household income that is discounted with the Gini coefficient. Source: DOS (2020b) and KRI Calculations

0.0 0.2 0.4 0.6 0.8 1.0 2,000 4,000 6,000 8,000 10,000 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 2019

Mean income Adjusted income Gini (RHS)

RM10,000

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AAGR GDP: 9.1% GDP: 5.6% GDP: 5.3%

…in line with a slowing economy ever since the AFC

Welfare in Malaysia Across Three Decades

Gross domestic product, 1989–2019

Note: Data expressed in 2019 prices. AAGR stands for average annual growth rate. Source: DOS (2020b) and KRI Calculations

0.3 0.4 0.5 0.6 0.6 0.7 0.7 0.9 0.9 1.1 1.2 1.3 1.5

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 2019 RM1.6tr

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Income growth has been underpinned by decreasing importance of paid earnings

Welfare in Malaysia Across Three Decades

Share of mean household income, by source for household head, 2012–2019

Note: Data expressed in 2019 prices. Source: DOS (2020b) and KRI Calculations

66.6 65.0 63.0 61.6 17.2 16.0 15.6 17.3 9.7 11.4 12.9 12.9 6.5 7.6 8.5 8.2 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 2012 2014 2016 2019 % Self-employment Paid employment Properties & investment Current transfers

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  • 2. Higher expenditure,

changing consumption patterns

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Household expenses increased, especially between 2009 and 2014

Welfare in Malaysia Across Three Decades

68.1% 54.4 58.3 57.4 10 20 30 40 50 60 70 80 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 1993 1998 2004 2009 2014 2016 2019 RM8,000

80%

Real mean monthly household income and consumption expenditure, 1993–2019

Note: The years featured in the chart are those with published data for household expenditure, which differs for earlier years with data for household income. Data is expressed in 2019 prices. Source: DOS (2020d), DOS (2020b) and KRI calculations

Income Expenditure as % of income (RHS) Expenditure

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Consumption patterns have changed, showing new forms of necessities

Welfare in Malaysia Across Three Decades

Index of real mean monthly household consumption expenditure, by selected category, 1993–2019

Source: DOS (2020d) and KRI calculations

100 200 300 400 500 600 700 800 900 1993 1998 2004 2009 2014 2016 2019 Communication Clothing & footwear Recreation & culture Housing & utilities Food away from home Transport Food at home

1993 = 100 9

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  • 3. Low residual income,

inadequate savings

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Residual incomes varies widely, with limited amounts for low income households

Welfare in Malaysia Across Three Decades

12,653 5,763 4,138 3,057 2,323 1,706 1,203 798 516 RM200 90 – 100 80 – 90 70 – 80 60 – 70 50 – 60 40 – 50 30 – 40 20 – 30 10 – 20 0 – 10 Household income decile 10%

Mean residual monthly household income in gross terms, by income decile, 2019

Note: Calculated as the difference between gross household income and consumption expenditure. Source: DOS (2020d), DOS (2020b) and KRI calculations

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  • 4. Slower income growth for

all, persistent disparities between rich and poor

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Income growth has slowed for households in all income groups

Welfare in Malaysia Across Three Decades

2 4 6 8 10 12

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

12% Decile Mean Median

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

Decile Mean Median

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

Decile Mean Median

Average annual growth in household income, by income decile, 1989–2019

Note: Calculated based on income data in 2019 prices. AAGR stands for average annual growth rate. Source: DOS (2017), DOS (2020b), EPU (n.d.a) and KRI calculations

Household income decile

1989–1997 1999–2007 2009–2019

AAGR Gini: 0.5% AAGR Gini: 0.0% AAGR Gini: -0.1%

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Attention should also be given to disparities between the top and bottom

Welfare in Malaysia Across Three Decades

Share of total household income, by income group and state, 2019

7.4 7.6 7.8 8.4 7.5 7.1 6.6 6.4 7.7 6.4 7.4 7.0 6.2 7.1 6.7 6.3 5.9 68.3 67.3 66.3 65.4 65.4 65.4 65.5 65.4 63.7 64.8 63.4 63.6 64.4 63.4 63.4 63.3 63.4 24.3 25.1 25.9 26.2 27.1 27.5 27.9 28.2 28.6 28.8 29.2 29.4 29.4 29.5 29.9 30.4 30.7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Perlis Labuan Terengganu Pahang Kedah

  • P. Pinang

Johor Sarawak KL Melaka Putrajaya Perak Sabah Kelantan

  • N. Sembilan

Selangor Malaysia MALAYSIA

Source: DOS (2020b) and KRI calculations

Top 10% Middle 70% Bottom 20%

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  • 5. Few absolutely poor, but

many are vulnerable

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Fewer households are in absolute poverty, but relative poverty persists

Welfare in Malaysia Across Three Decades

Rate of absolute and relative poverty, 1989–2019

19.5 17.4 15.6 16.9 16.5 6.1 3.8 0.6 0.2 7.6 5.6 0.0 5.0 10.0 15.0 20.0 25.0 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 2019 Relative poverty

(2019 PLI: RM2,937)

Absolute poverty

(2005 PLI: RM960 avg.)

25% Absolute poverty

(2020 PLI: RM2,208 avg.)

Note: Relative poverty here is defined as households with incomes below 50% of the median by DOS Source: DOS (2020b) and KRI calculations

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To ensure decent living for all, increased social spending is needed

Welfare in Malaysia Across Three Decades

5.1 5.6 6.5 7.5 6.6 7.5 11.1 10.3 12.1 16.4 15.9 18.5 24.9 0.0 5.0 10.0 15.0 20.0 25.0 30.0 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 2019 RM30b

Annual social assistance expenditure needed to close relative poverty gap, 1989–2019

Note: This excludes administrative costs and assumes perfect targeting. This is calculated based on a relative poverty line defined as below 60% of the median household income. Source: EPU (n.d.a), DOS (2020b) and KRI calculations

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  • 6. Slow inter-state convergence,

sluggish earnings growth

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AAGR A: 8.2% B: 7.1 C: 3.5 D: 4.6 MALAYSIA: 6.3 A: 2.5% B: 2.3 C: 2.2 D: 3.8 MALAYSIA: 3.1 A: 5.4% B: 5.7 C: 5.2 D: 5.9 MALAYSIA: 5.6

Income gaps persists between states, as convergence has not been fast enough

Welfare in Malaysia Across Three Decades

2,552 9,581 1,338 4,239 1,708 5,873 2,000 4,000 6,000 8,000 10,000 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 2019 RM10,000

Real median monthly household income by state group, 1989–2019

Note: Data expressed in 2019 prices. AAGR stands for average annual growth rate. Source: DOS (2020b), EPU (n.d.c) and KRI calculations

Group C Group A MALAYSIA Group B Group D

KL, Putrajaya & Selangor Johor, Melaka, N. Sembilan, P. Pinang & Terengganu Labuan, Sabah & Sarawak Kedah, Kelantan, Pahang, Perak & Perlis

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The little convergence was mainly driven by increased transfers, rather than wages

Welfare in Malaysia Across Three Decades Percentage point change in share of mean household income, by source for household head, by state, 2014–2019

Note: A negative percentage point change implies a decrease in the share of an income source and not necessarily a decrease in absolute RM terms. Source: DOS (2017), DOS (2020b), KRI calculations

1.2

  • 1.5

Selangor Putrajaya KL

  • 1.3

0.8 Sarawak Sabah Labuan 2.9 4.2 2.5 1.8 Perlis Perak Pahang Kelantan Kedah 0.7 1.9 Terengganu P.Pinang N.Sembilan Melaka Johor Paid employment Self-employment Property & investment Current transfers

  • 8.0 ppt
  • 4.0

+4.0 +8.0 ppt

Decreased income share Increased income share 0.0

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  • 7. Smaller ethnic gaps, but

narrow economic base

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Median incomes between ethnic groups have been converging

Welfare in Malaysia Across Three Decades

Source: DOS (2020b) and KRI calculations

Ratio of ethnic group median household income to national median household income, 1989–2019

0.8 0.9 1.4 1.3 1.1 1.0 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016 2019 Chinese Bumiputera Indian MALAYSIA

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…but disproportionate shares of income persist

Welfare in Malaysia Across Three Decades

Ratio of ethnic group income share to household share, 2019

0.67 0.90 1.04 1.25 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Others Bumiputera Indians Chinese

Source: DOS (2015a), DOS (2017), DOS (2020b) and KRI calculations

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The economic base for the Bumiputera remain small and less diversified

Welfare in Malaysia Across Three Decades

Note: Investments in counted industries would increase the income shares of the subgroups in both 2014 and 2015. The industries shown are the top three industries, ranked by the relative increase in income shares, for a given subgroup. Those underlined are classified as modern. Mfg. stands for manufacturing,

  • svc. for services, govt for government, agri. for agriculture, and R&D for research and development.

Sources: DOS (2019b), DOS (2019c) and KRI calculations

5 4 8 17 19 16 Bottom Middle Top 4 5 6 11 11 6 Bottom Middle Top

Petroleum, transport mfg, transport svc. Govt services, education, health Metal mining, textile mfg, beverage mfg Education, agri, govt services Agri, forestry, fishing Other mining, education, govt services

Number of industries that raise income shares, by strata, income and ethnic group, 2014 and 2015

5 17 Bumiputera Non-Bumiputera

Rental services, R&D, real estate Finance, wood mfg, real estate Textile mfg, metal mining, metal mfg Wholesale trade, utilities services, agri Other mining, coal, wholesale trade Agri, wholesale trade, fishing

Urban Rural 24

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  • 8. Negotiating trade-offs,

achieving structural transformation

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Transforming jobs entails managing trade-

  • ffs in income inequality

Welfare in Malaysia Across Three Decades

Palma ratio and median household income income, by industry of household head, 2019

To achieve growth with progressive distribution, policies should shift employment to higher value-added activities while improving wage distribution within sectors

Agriculture Admin & support F&B and accommodation Transportation & storage Construction Wholesale & retail Manufacturing Mining Education ICT Finance Real estate 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 2,000 4,000 6,000 8,000 10,000 12,000 Palma ratio (T10-B40 income share) Median (RM) RM0

Source: DOS (2020b) and KRI calculations

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Thank you

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Welfare in Malaysia Across Three Decades

Stay tuned for more on The State of Households 2020

@KRInstitute Or Khazanah Research Institute www.KRInstitute.org