Pandemic magnifies income disparity, targeted aid needed

The country’s income inequality had risen, with the Gini coefficient value increasing from 0.399 in 2016 to 0.407 in 2019


COVID-19 has highlighted the increasing income inequality in Malaysia, which affected the employment of the economically vulnerable groups.

Income disparity in the country is being measured by the Gini coefficient, with a higher value showing higher inequality in income.

Even prior to the pandemic, the income inequality in Malaysia had risen, with the Gini coefficient value increasing from 0.399 in 2016 to 0.407 in 2019.

Institute for Democracy and Economic Affairs senior economist Adli Amirullah said the pandemic has also brought out one of the main concerns of income inequality, which is the wealth disparity between the three levels of the income group.

“The pandemic is just a situation that allows us to see the income disparity in a much more visible way.

However, income disparity is the least concern here.

“The most concerning disparity is the wealth disparity, meaning the T20 (top 20%) household is not only earning a very high income, but they also own a very huge wealth that we have not measured compared to the B40 (bottom 40%) and the M40 (middle 40%),” he said.

Adli explained during the moratorium, the trend suggested that the highest income group took the opportunity to invest in the financial market to gain additional cash compared to the affected group who used the money to pay the necessary bills.

“During the pandemic last year, we had the blanket loan moratorium, where the T20 loan amount is higher than the B40 and M40. When they have that extra cash, they tend to reinvest it in the financial market and gain even higher earning.

“Bear in mind that this group did not lose their job and hence, they can still pay all their bills. However, for the B40 and most of the M40 families, they need to use the moratorium to survive,” he said.

Adli added that the precedent demonstrates the positive impact of the pandemic on the T20 group’s wealth which further contributes to the income gap.

As a solution, Adli said although there are no ultimate means to unravel the situation, the government could approach the matter through a targeted means, which reduces the burden on the vulnerable group.

“There is no silver bullet in addressing income or wealth disparity, but tax may be one of the solutions to reduce the disparity. Also, the type of tax should be limited and strict to the T20 household.

“If the tax is universal like the value-added tax, the one that will feel the most burden is the M40 household.

“Since disparity is a long-term problem, for now, it is best to focus on helping the most vulnerable group like the B40 households to survive this pandemic. Then, the next step would be addressing the T20 tax that may help reduce the gap in the future,” he said.

Earlier this week, the Department of Statistics Malaysia said the number of unemployed persons in Malaysia have increased to 782,5000 in January, partly due to a review of business strategies in tourism-related industries.

This was an increase of 9,700 persons compared to 772,800 unemployed persons last December.

Meanwhile, Khazanah Research Institute research associate Adam Manaf Mohamed Firouz said recovery efforts should focus on the measure that ensures people to continue maintaining their standard of living without having to resort to depleting their savings while reducing long-term risks in career development.

“The primary focus of government assistance during the pandemic should be to minimise job losses, especially during periods of economic restrictions, via provisions such as wage subsidies.

“For workers who have already lost their jobs, assistance should then aim to replace a portion of lost earnings, like the existing insurance scheme, but it should be extended to all workers including those self-employed and working informally,” he said.

“While there is no current official estimate of income inequality, there is no doubt that Covid-19 has had disproportionate socio-economic effects for different groups in Malaysia.

“Many workers from the low- to middle-income households have been at risks of job losses or wage cuts, especially those self-employed and from small and medium enterprises and badly-hit sectors like retail and tourism,” he told The Malaysian Reserve.

However, Adam Manaf said unemployment statistics do not represent the true extent of job losses as workers may have sought work elsewhere and had to work fewer hours or with less pay, or given up working entirely.

“These trends seem apparent via the total number of underemployed persons and persons outside of the labour force, which is higher in 2020 than in 2019, with underemployment more prominent among younger persons and more women have left the labour force.

“The trends will have negative implications on income inequality and in turn wealth inequality, but also widen the gap in career development for young and female workers,” he said.

Read our previous report here

Income disparity issue emerges as urbanisation grows: Reezal