Presentation for 'Malaysian Capitalism in Comparative Perspective' : Day 2 Dr. Lee Hwok Aun 8 November 2016

1. A Malaysian French International Conference
Malaysian Capitalism, in Comparative Perspective

2. Dr. Hwok-Aun Lee
Senior Fellow, Institute of Southeast Asian Studies (ISEAS)
Senior Lecturer (2010-2016), Department of Development
Studies, University of Malaya
Dr. Muhammed Abdul Khalid
Director of Research (2014-2016), Khazanah Research Institute
Presentation at the symposium on Malaysian Capitalism in Comparative
Perspective, Khazanah Research Institute, 8 November 2016

3.  Official data (based on Household Income Survey)
[inequality ↓] vs. public discourse / perception [inequality ↑]
 Perception of rising inequality may derive from
dissatisfaction with wealth concentration at the top
 Scant government recognition of phenomenal success
 Different dimensions of inequality :
Household gross income vs. earned income/wealth
 Different inequality patterns?

4. Major Constraints
 Household Income Survey (HIS) data: most authoritative, but
inaccessible for critical, independent, academic research
 We probe inequality in personal earnings and wealth with reference to
other data besides the HIS
Key Questions
1. Is the recent documentation of declining income inequality being
overlooked or partially sighted?
2. Based on available data besides the Household Income Survey, has
inequality has decreased in the 2000s, as indicated by the official
account? Are there variations in inequality trends, based on unit of
analysis (household vs. personal) and dimension of inequality (income,
earnings, wealth)?

5.  Overall: lowest ever recorded level in 2014
 Rural: downward trend since 1997
 Urban: downward trend since 2004
 Significant:  most data in this study is urban-centric
0.34
0.36
0.38
0.40
0.42
0.44
0.46
0.48
Gini coefficient of gross household income, 1989-2012
Urban Rural Overall

6. Malaysia, withThailand: anomalies vis-à-vis major
Asian economies (China, India, Indonesia, South
Korea) that experienced widening inequality since
2002 (ADB 2012)
Malaysia’s Gini coefficient shrank 1.32% per year
(2004 – 2014), far exceeding average 0.96% recorded
in thirteen Latin American countries in the 2000s
(Lustig et al. 2013)
 Latin American countries underwent leftward shifts in
political, ideological and policy spheres

7.  Government disbelieving its own official statistics?
 Overlooked:
 Inequality reduction not a top policy  not monitored, not
noticed
 Aggregate inequality a more recent (post-2013) priority
 Decrease in inequality undercuts the bottom 40% agenda to
assist lower income households?
 Partially sighted:
 Gross household income inequality may have declined, but
not necessarily personal earnings and wealth inequality
 No information on the degree of concentration at the
uppermost end of the distribution (top 1%)

8. 0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1989-1997 1997-2004 2004-2014 2004-2009 2009-2012 2012-2014
Average annual growth of mean household income, by
income bracket, 1989-2014
Bottom 40% Middle 40% Top 20%

9. Based on Household Income Survey:
1. Ragayah (2008), Ishak (2000): Rising household income inequality in
1990s explained by structural developments:
 widening household income gaps due to liberalization policies
 increasing skills premiums
 technological advancement through foreign direct investment
2. Lee (2010): 1997-2004 personal earnings inequality increased, but
household income inequality remained relatively static
3. Milanovic (2008): hourly personal earnings static between 1989 and
1997, the same period in which household income inequality rises
 Personal earnings inequality and household income inequality can
move in different directions

10. Pew ResearchCenter [2013] – Perceptions of inequality in
Malaysia:
 “Malaysians are one of the least troubled with inequality.
They are among the least concerned about it as a problem,
the least likely to think it is growing, and one of the least
likely to say the economic system is unfair”
 41% considered inequality a “very big problem” and 34% a
“moderately big problem”
 Inequality patterns: 32% inequality has increased, 38%
stayed the same, 22% decreased

11.  Compile and present data from various sources, with
focus on earnings and wealth
 Estimate inequality: Gini coefficient
 Where possible, compute distribution by deciles or smaller
brackets
 Guiding criteria – data must:
1. Cover broad sample of relevant population [private
& public sector employees]
2. Allow estimation of inequality
3. Be consistent over time

12. Earnings
Indicators
Data source Notes
Private sector
salaries
Employees’ Provident
Fund accounts
(compulsory savings
and retirement
income)
 Mandatory for private sector employees
 6.5 million active members
 Contributions to EPF accounts capture
basic salaries earned, since contribution
rates have remained stable
Public sector
employee
earnings
Public sector
employment
 Distribution of public service workers by
strata (senior management / management
and professional / support staff) correspond
with earnings
 1.3 million employees
Car sales Malaysian
Automotive
Association
(vehicle sales and
prices)
 Passenger vehicle purchases derive closely
from earned income
 Sales data, by vehicle model and matched
with price, can provide us another
perspective on income distribution

13.  Advantages:
 Based on registries and repositories, not surveys
 Covers specific populations
 Limitations:
 Lacking national, cross sector coverage
 Fragmented picture – findings and data sources
cannot be combined into composite view of inequality

15.  EPF : largest retirement fund in Malaysia, with 13.9 mil
members (6.5 mil active).Total investment RM 586 bil

 Holders of active EPF accounts: all wage earning
formally employed private sector employees
 Standard contribution rates and equal dividend rates
 Distribution of EPF accounts by size
 Reflects distribution of wages
 Inequality in EPF accounts of active members
 Earnings inequality in private sector
 Assumption: no major change in participation rates,
fluctuations in withdrawal rates, other anomalies

16. Source: Authors’ calculations from the EPFAnnual Report (various years)
0.60
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.70
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Gini coefficient of EPF savings accounts, 2004-2014

17. 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Share of EPF savings, by percentile segment, 2004-2014
Below 50th
50th to 80th
80th to 90th
Above 90th
(Top 10%)
Above 99th
(Top 1%)

18.  Salary differentials: top
management, management
and professional, support staff
 Increase of proportion in top
management and in
management and professional
 Concentration in uppermost
positions, similar to findings
from EPF
 Top management receives
steeply higher salary
Public services employment, by
occupation (% total), 1999-2012
1999 2005 2012
Top management 0.09 0.10 0.17
Management and
professionals 14.07 21.06 29.80
Support staff 85.84 78.84 70.02
Overall 100.00 100.00 100.00
Total employees
(millions) 0.88 1.03 1.30
Source:Authors’ compilations from the Employment List of Ministries
and Departments in the Estimated Federal Budget

19.  Correspond with
economic and labour
market conditions
 Loan approvals hinge on
proven income
 Rising share of vehicles
sold at the high end and
bottom end
 Rapid growth in luxury
brands and compact cars
2001 2006 2011
≤40,000 24.4% 30.1% 30.0%
40,001-60,000 43.5% 36.2% 34.0%
60,001-80,000 19.4% 15.5% 16.3%
80,001-100,000 1.5% 8.5% 5.9%
100,001-200,000 9.1% 8.0% 11.4%
200,001-500,000 1.9% 1.5% 2.2%
≥500,001 0.1% 0.1% 0.2%
100.0% 100.0% 100.0%
New car purchases: Share of total
number of vehicles sold, by price range
(2005 constant Ringgit), 2001-2011.
Source:Authors’ calculations from
Malaysian AutomotiveAssociation records.

20.  We find evidence of slight growth in earnings inequality (private
and public sectors) and observe a trend of increasing
concentration at the topmost strata
 Suggests credibility to perceptions and discourses critiquing the
disproportionate power and material gains enjoyed by the “top 1% “
 Malaysian labour market: overall, possibly not seeing major increase in
earnings inequality in past decade, but needs further analysis using HIS data

21.  Gross household income inequality may decline while personal
earnings inequality rises, due to transfers, multiple income
earners, etc.
 Need to examine the HIS and incorporate earnings and wealth
inequality into academic and policy discourses