The economic slowdown due to the Covid-19 pandemic is expected to widen the gap between high-, middle- and lower-income groups even further.
Putra Business School associate Prof Dr Ahmed Razman Abdul Latiff told The Malaysian Reserve (TMR) that one of the signs that this is already happening is the highest rate of unemployment (5% or 780,800 persons) recorded in April.
Based on Khazanah Research Institute’s report in 2018, Malaysia’s household income inequality Gini coefficient declined from 0.513 in 1970 to 0.399 in 2016.
However, the gap between the T20 (top 20%) and the M40 (middle 40%) groups rose from RM6,000 to RM10,000, while the gap between T20 and B40 (bottom 40%) groups rose from RM8,000 to RM14,000 from 1995 to 2016 before adjusting for inflation.
The report noted that despite the declining Gini inequality coefficient for income distribution, the absolute earnings gap between the top quintile and the others nearly doubled in the two decades up to 2016.
Ahmed Razman said over the two decades, average differences in household income adjusted for inflation almost doubled.
The average T20 household income rose from about RM9,000 in 1995 to RM16,000 in 2016, the average M40 income increased from around RM3,000 to RM6,000, while the B40 average also doubled from about RM1,000 to RM2,000, reducing overall inter-household income inequality.
Studies have shown that whenever a financial crisis happens, the high-income group will be able to recover their wealth far quicker than the rest.
The current upshot has many economists urging the government to make changes and amendments on the country’s economic plan, specifically the 12th Malaysia Plan (12MP).
“At the moment, the 12MP will be aligned with the shared prosperity initiative encompassing three dimensions, namely economic empowerment, environmental sustainability and social re-engineering.
“However, when taking into consideration the major economic and social impact caused by the pandemic, the volatility of commodity prices, geopolitical crises among superpowers and the current global economic slowdown, the 12MP should also focus on the development of human capital to produce more highly-skilled workers and industry creator entrepreneurs,” said Ahmed Razman.
On top of that, global connections and linkages should be further strengthened to expand potential markets and reduce dependency on certain markets, as well as to champion domestic players and markets, he added.
Sunway University Business School economist Prof Dr Yeah Kim Leng said the lower-income groups, especially those who have been retrenched or faced salary cuts, the self-employed and small businesses which faced closures during the Movement Control Order are made worse off by the current crisis.
He told TMR that the 12MP would need to expand education, skills training and income-generating opportunities for the B40, while accommodating those from the M40 households, so that the country’s human resources are developed to full potential.
“A key thrust of 12MP is to accelerate productivity growth and shift to higher-value products and services, so that higher wages and income can cascade to the B40 group.
“A desirable goal is to raise the B40 median income to the current level of M40, so that all Malaysians can enjoy a decent living standard by 2025,” said Yeah.
Economist Tan Sri Ramon Navaratnam concurred that education plays a vital role in narrowing the country’s wealth gap.
“The education system must be transformed. If people are trained to do skilled jobs, like technical and vocational jobs, they can always get a decent income, but if they are given education that has no employment opportunity, they will not be employed or will end up with labourer salaries,” he said.
He also called for a raise in wages and for certain sectors, such as industrialisation, manufacturing and tourism, to be spread out more to the rural areas, so the people there can participate in employment.
“The 12MP must be remoulded. Otherwise, there will be more income disparities and poverty,” he added.
Source: https://themalaysianreserve.com/2020/07/13/12mp-needs-to-address-widening-wealth-gap/