The State of Households 2018 - Different Realities (Presentation Slides)

Different Realities
State of Households 2018
15 October 2018

+THE STATE OF HOUSEHOLDS 2018
2
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 by Income
Y = AF(K,L)
I GC (X-M)
Expenditure
Profits RentsWages
Income
Manu-
facturing
Services
Agri-
culture
Sector
Mining

• The economy combines labour and capital to produce output. In return, labour gets
wages and capital gets profits.
• Increasing wages requires increasing productivity. Increasing productivity requires
increasing labour quality. How do we improve the quality of labour? 3
Background: The Economic Machine
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
ProductivityDistribution
• Higher productivity drives
higher wages.
• Higher quality labour inputs
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
incomeRM62,736
RM83,496
RM177,184
Median household income
Mean household income
GDP per household
Profits
Wages
GDPY = AF(K,L)

4
Background: From Inputs to Outcomes
Macro outcomes impact and are impacted by inputs from government policy. Similarly,
Government policy both impacts and is impacted by Labour inputs (People).
• Quality of economic growth ultimately depends on quality of inputs.
• KRI’s mission is to undertake research on issues affecting the quality of life – and
therefore productivity – of people. The research seeks to influence policies with the
objective of achieving development outcomes beneficial to all Malaysians.
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

5
Background: KRI’s 5 Focus Areas
Amidst the context of Demography, Science & Tech, and Politics & Geopolitics, KRI
undertakes research in 5 areas impacting Growth, Equitability, and Societal Well-Being
• KRI investigates issues that impact Growth, Equitability, and Societal Well-Being within
the contexts of Demography, Science & Technology, and Politics & Geopolitics.
• Using the lenses of Shelter & Cities, Jobs & Skills, Food & Agriculture, International Trade
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

6
Background: Our Journey So Far
KRI has published 9 Books, 9 Discussion Papers and various articles since its
inception in 2014.
• KRI publishes books, discussion papers and articles, aimed at ultimately influencing policy
directions, while improving public awareness about crucial policy issues.
Books
Discussion
Papers

7
Research Impact: Affordable Housing
Housing is a pressing issue for households, with Malaysian homes becoming more
unaffordable for most Malaysian people
• Malaysian homes have become more unaffordable. In addition, 57% of Malaysian
household debt is for mortgages. Continuing research into Affordable Housing is critical.
• KRI has focused on its research and advocacy into Affordable Housing, leading the
formulation of Dasar Perumahan Negara 2.0 with JPN-KPKT.
Making Housing Affordable
Key Recommendations:
• Designated procurement route for
affordable housing
• Introduce shorter term
moratoriums
• Create integrated database for the
efficient planning of housing units2015
2018
Policy Impact: National Housing Policy
• KRI tasked to work with JPN-KPKT
in formulating new National
Housing Policy 2.0 (DRN 2.0)
• DRN 2.0 built on assessment of
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
P. Pinang 5.5
N. Sembilan 5.1
5.1 & Over
Severely
Unaffordable
KL 5
MALAYSIA 4.4
P. Pinang 4.1
Johor 5
MALAYSIA 5
KL 4.9
Selangor 4.7
4.1 to 5.0
Seriously
Unaffordable
Selangor 3.6
Johor 3.5
N. Sembilan 3.3
Melaka 3.1
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.

Research Impact: Trade Policy
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
• How globalisation
affects daily lives of
Malaysians
• Non-tariff barrier
issues
• Complexity of trade
agreements
• Domestic labour
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
• Malaysia’s economic history is a history of external trade. Today, trade is 113% of GDP.
• KRI’s publications on trade policy compile a history of Malaysian trade and investment policy
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
8
0
20
40
60
80
100
120
140
160
180
0
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
%
RMmillions
Real GDP (MYR mn) Exports (MYR)
% of total trade/real GDP
2017:
RM1,480 bn
2017:
RM885 bn
2017: 113%
Source: Dos (2017)

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
on foreign workers
9
The State of Households I
Where it all began: KRI’s first publication sought to provide a data-driven
understanding of Malaysian households.
• Using data from the Department of Statistics Malaysia, SOH I provided quantitative
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.
0
400
800
1200
1600
2000
2400
60 70 80 90 00 10
Indexedvalue
(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.

10
The State of Households I
SOH 1 shifted public discourse regarding household income vs GDP,
median vs mean income, and petrol subsidies, among others. 2014
Press Coverage

11
The State of Households II
SOH II deepened the work of SOH I, with a sharp focus on food prices and
the demographic landscape – particularly gender and ageing.
• SOH II highlighted important demographic issues – including Malaysia’s ageing
population and the difficulties for our youth in finding decent work – leading to KRI’s
ongoing research projects, such as School-to-Work.
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
overall inflation
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

Press Coverage
12
The State of Households II
SOH II highlighted the fragility of low-income households in Malaysia touching
on incomes, savings and expenses. 2016

xxx
The State of
Households
2018

14
The State of Households 2018: An Overview
• Part One investigates the different realities faced by Malaysians across the country.
• Part Two addresses issues surrounding Women and Foreign Workers.
• Part Three looks at Malaysia’s economic development as a whole, since Independence.
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
- KRI Data Visualisation

15
The State of Households 2018
SOH 2018 follows on from SOH II, with a focus on understanding the
different realities faced by households across Malaysia
• Since Independence, Malaysia has advanced on a clear path of progress.
• However, economic realities across Malaysian households are much more disparate.
• Difficult challenges remain, such as: persistence of low incomes; increasing gap between
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
of their income
Income inequality has
improved
More self-employed
women
The increase in foreign
workers is slowing
Well-being of households
linked to econ. transformation

16
Part 1: State of Households
Across Malaysia’s states and federal territories, there is significant disparity in
household incomes
• Household incomes are different across Malaysia. As such, policies (welfare, housing,
education) must consider threshold differences across states during implementation.
• Degrees of urbanisation are most associated with income disparities within states.
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

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
KualaLumpur
Putrajaya
Selangor
Labuan
Johor
Melaka
PulauPinang
Malaysia
Terengganu
NegeriSembilan
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
• Median household income is lower than mean in all states.
• The savings vulnerability of households is worsened given that households earning <RM
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. 17

18
Gap between T20 and M40/B40 continues to widen; Households below RM 2,000
spent almost 95% of income
• Gap between T20 and B40/M40 continues to widen. What is different post 2008 GFC is
that GFC did not reduce gap – compared to 1987 and 1997 crises which did.
• Lower income households spent nearly 95% of income on everyday expenditure,
leaving them vulnerable with little savings against economic shocks or emergencies.
0
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
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
%

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%
%shareoftotal
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
0
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
• Malaysia has bucked global trends, with a large increase in labour income share from
1991-2014. This has helped to reduce inequality in Malaysia.
• However, this has come due to an economic structure that prioritises traditional
services rather than high-tech sectors. Continuing on this path threatens future growth. 19
Industrialisation

20
Part 2: The Malaysian Workforce
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
• Self-employment has increased women’s labour force participation. Women stay
longer in workforce, but large gender gap remains.
• 2.6M women, mostly educated and of prime-working age, stayed out due to
housework. Alleviating women’s challenge to balance work and family is key.
1,510 1,549
69.8
2,564
405.5
176.9
192.6
132.6
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Men Women
NumberofPersons(‘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
0
10
20
30
40
50
60
70
80
90
100 %
Men
Women
Source: CEIC (n.d.) Source: LFS (2017) and KRI estimation

37.4
23.6 20.5
12.5
8.9
0
10
20
30
40
50
60
70
80
90
100 %
21
Part 2: The Malaysian Workforce
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.
• Number of foreign workers increased marginally.
• Presence of foreign workers can have negative impacts on least-educated, lowest-skilled
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
0
500
1000
1500
2000
2500
No.ofpersons('000)
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

22
Part 3: Malaysia’s Development Journey
Well-being of households intrinsically linked to economic transformation
• Improvements in the well-being of households in Malaysia are linked with the changing
nature and trend of economic growth since Independence.
• As the economy has diversified, households have prospered. Can we continue to
diversify our economy to ensure sustained growth in household incomes?
Real GDP and real annual median household income, 1960 – 2016
0
10,000
20,000
30,000
40,000
50,000
60,000
0
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

Part 3: Malaysia’s Development Journey
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
our
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
• In coping with Malaysia’s structural change, policies must be crafted to drive innovation,
improve human capital and modernise infrastructure with the ultimate aim of equipping
Malaysia’s households to face domestic and global challenges.
• Enhancing household well-being in this context will be hard is no less important than before. 23

Control of Corruption
Beyond Growth: Building Strong Institutions
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)
• Strong institutions are necessary for development. Unfortunately, Malaysia’s institutional
strength has declined in the past decade.
• To support the next stage of development, we need to look beyond growth and focus on
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
-0.3 -0.32
0.32 0.16
-0.50
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
-0.09 -0.09 -0.36
-0.46
-0.50
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

Conclusions
Households across Malaysia face very different
realities. Policy must be set within the right local context, taking
into account different income thresholds in different states.
More must be done to improve women’s labour force
participation. Women’s participation rate has improved, but a
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
growth. Institutions are a key determinant for Malaysia’s
continued development. The reduction in Malaysia’s institutional
strength over the past decade must be reversed.
1
2
3
4
25

xxx
Appendix

Malaysia and the Middle Income Trap
We have been a middle income country for more than half a century
• Breaking out of the middle income trap is extremely difficult.
• Despite 3 rounds of structural changes (from commodity driven to export oriented
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
Yearsasmiddle-incomecountry
27

28
Beating the Middle-Income Trap is
historically rare
Crowded out at the top, pressured from the bottom
• Escaping the Middle-Income-Trap is rare. Those that managed to move on from Stage 2 to
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
out of the Middle Income Trap…
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!

29
Past decade: external and local stimulus, debt
Reliance on credit to increase living standards among lower-income group
• 2008 GFC: Debt from stimulus packages in US (USD800bn) and China (RMB4tn), and
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
fisc. stimulus
USD 800bn
2009-2010 US fisc.
stimulus
USD3tn
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
80%*41%
* Includes contingent liabilities, PFI/PPP and gov’t-
guaranteed debt. Without these liabilities: 51%
84%61%
95%71%
House-
holds
Gov’t
Corp
52% of debt
Vehicles/personal financing
Households earning < RM5,000
Sources: BNM Financial Stability and Payment Systems Report, 2015
Private Consumption, % of GDP

Average and Median
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 42 4 2 2 11
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 11 21 1 22
Bottom half of sample
However in practice, the
distribution of income is
asymmetrical. Thus, the
median and average
income will not
necessarily be equal, as
seen in Figure 2
Figure 1
Figure 2
30

Slowing Economic Complexity
Improvement in our Economic Complexity has slowed since 2000, when we reached
our peak industrialisation
• While growth may be more inclusive, structurally the Malaysian economy is slowing down
vs. our peers. Our Economic Complexity is slowing.
• As we chart our future development course and diversify our economy, how do we manage
the trade off between inclusivity and productivity?
-1.5
-1
-0.5
0
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

Households’ balance sheet inequality
Income inequality translates to wealth inequality
• Mortgages as a share of total loans have risen 10 percentage points since 2006, further
reducing the lower-income households’ ability to save.
• Meanwhile, distribution of holdings in EPF and PNB further cement wealth inequality as the
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)
Top 7.6% own 75% of
Invested Funds
than remaining 807k
Holders
Top 10.6% own 79% of
Invested Funds
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
32

The State of Households 2018 - Different Realities (Presentation Slides)

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