INEQUALITY, POVERTY AND SOCIAL SAFETY NETS: THE MALAYSIAN EXPERIENCE

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INEQUALITY, POVERTY AND SOCIAL SAFETY NETS THE
MALAYSIAN EXPERIENCE Ragayah Haji Mat Zin IKMAS,
UKM rogayah_at_pkrisc.cc.ukm.my
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Outline

• 1. Introduction
• 2. Structural Transformation of the Economy
• 3. Trends in Income Inequality
• 4.1 Overall Income Distribution
• 4.2 Rural and Urban Income Distribution
• 4.3 Ethnic Income Distribution
• 4. The Structure of Poverty
• 4.1 The Definition of Poverty Line Income
• 4.2 Incidence and Trends
• Impact of Development Policies on Income
• Distribution and Poverty
• Social Protection Systems
• Concluding Remarks

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Introduction

Objective of paper to outline the Malaysian
experience in managing income distribution and
absolute poverty eradication as well as to survey
the available social protection programmes
available to cushion those affected by economic
crises, which occurred more frequently than we
realised. This is to facilitate a comparison of
the Malaysian experience with those of other
countries in the region, specifically Thailand
and Japan
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Struc. Transformation of the Msian Economy

• Table 1 shows that Msia experience high economic
  growth -- due to rapid growth of the mfg sector.
  Thus, GDP share of mfg sector rose from 13.9 in
  1970 to 30.6 in 2003 while that of the agric.
  sector fell from 29.0 to 8.2 over the same
  period. The share of the services sector also
  rose from 36.2 to 56.8.
• Resulted in a fall in primary sector empt., rise
  in secondary tertiary sector empt., with
  falling unempt. rate.
• Unbalance changes in sectoral GDP shares empt.
  resulted in uneven productivity, with those in
  the industrial sector far gt that of the agric.
  sector--implies inequitable income dist.

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3. Trends in Income Inequality

• The Gini ratio for Malaysia rose from 0.513 in
  1970 to 0.529 in 1976, but fell thereafter to
  0.446 in 1990. After that the Gini ratio
  increased 0.470 in 1997, but shrank to 0.443 in
  1999 as a consequence of the financial crisis of
  1997-98.
• The values of the Gini ratio for the urban
  areas rose from 0.503 in 1970 to 0.512 in 1976,
  but fell thereafter to 0.445 in 1990. Although
  income disparity widened for the whole nation
  after 1990, the trend of urban income
  distribution continued to fall to 0.427 in 1997
  and 0.416 in 1999.
• The trend of rural income distribution
  indicates that the levels of inequality in the
  rural areas were lower than those in the urban
  areas prior to 1999. The value of the Gini ratio
  in 1970 was 0.469, rising to 0.500 in 1976,
  falling to 0.409 in 1990, but rising again to
  0.424 in 1997, and moderated slightly to 0.418 in
  1999.

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Gini Coefficients of H/H Income by Strata,
Malaysia 1970 - 1999
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Malaysia Income Disparity Ratios,1979-2002
Trends in Income Inequality
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Ethnic Income Distribution
Trends in Income Inequality

• In 1970, the degree of inequality was highest
  among the Malays, followed by the Indians
  lowest among the Chinese
• By 1976, income distribution of the Malays
  the Chinese deteriorated, with the ineq. among
  Chinese h/h exceeding that of the Malay and
  Indian h/h
• Bet. 1976 1990, all ethnic groups improved
  their income distribution, but income inequality
  reduction proceeded extremely slowly for the
  Malays, resulting in this group having the most
  unequal distribution
• Except for that of the Chinese, income
  inequality deteriorated among the other two
  ethnic groups bet. 1990 1997.

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Gini Coefficient of H/H Income by Ethnic Groups,
Malaysia 1970 - 1997
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4. Structure of Urban Poverty Incidence Trends

• Poverty Line Income (PLI) min. reqts for
  food,
• clothing footwear, non-food items, eg. rent,
• fuel power, transport, etc. updated using CPI
• Income refers to household, not individual,
  income--
• does not take account of diffs. in cost of
  living, hh size, consumption patterns between
  rural urban areas
• eg. PLI for 1987 RM350 per month for hh of 5.14
• in Penin. Msia, RM429 p.m. for hh 5.24 in
  Sarawak
• RM533 for hh of 5.36 in Sabah.
• PLI for 2002 RM529 per month for Penin. Msia,
  RM600 p.m. for Sarawak RM685 for Sabah

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Structure of Poverty

• Malaysia Total no. of poor hh fell from 1m to
  267.9 th, pov. incid. plunging from 52.4 to
  5.1 between 1970 2002
• Poverty rural phenomenon-- Fell from 864.1th
  hh (50.9) in 1976 to 198.3th hh (11.4) in 2002
• Urban poverty Decreased fr 111.8th hh
  (18.7) in 1976 to 69.6th hh (2.0) in 2002
• Poverty incidence are not evenly
  distributedPoverty incidence are higher in
  Sabah, Kelantan, Kedah, Terengganu Perlis.

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Malaysia Incidence of Poverty
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• 5. Impact of Dev. Policies on Y Dist.
• Rural Developmentwhile improved income welfare
  of rural households, their efficacy in achieving
  this objective as well as redistribution of
  income can still be improved
• Education and employment
• Industrialization and structural change
• Restructuring of equity ownership and asset
  accumulation
• Other policies and programmes include
• Provision of basic services, infrastructures
  housing
• NGOs, eg. Amanah Ikhtiar Malaysia (AIM)
  Yayasan Basmi Kemiskinan (Poverty Rradication
  Foundation)
• Trends of Wages Salaries in the Mfg Sector
  narrowing thus no support rising trend
• Changing of land status fr. agric. to housing and
  industrial landwiden inequality in rural areas
• Back Migrationrich moving to rural areas, ie.
  periphery of cities

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6. Social Protection Systems
Crisis revealed lack SSN to cushion the poor.
Moreover, industrialisation urbanisation plus
social mobility have resulted in the
disintegration of traditional forms of social
protection -- need formal social security
provisions SSN available include soc. sec.
schemes, social insu saving schemes
public/social assistcoverage inadeq. 5.1 Social
Security Schemes i. The Employers Liability
Scheme -ELS- covering empt injury compensation
since 1952 sickness maternity benefits since
1955 ii. civil service pension (1951), a
non-contributory pension scheme for civil
servants iii. Employee provident Fund EPF-
(since 1951) is for all workers not covered by
the CS pension iv. Workers Compensation Scheme
(1952) to det terms amts of compensation in
case of death or accident--never attained much
significance
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Social Protection Systems
5.2 Social Insurance Savings Schemes i.
Social Security Organisation (SOCSO) estab in
1969 -- main social insurance scheme for workers
earning lt RM2000 (US1 RM3.8) a month for
Employment Injury Insurance Scheme Invalidity
Pension Scheme ii Several unit trusts
private saving schemes onto which workers can
fall back on in times of need if they have become
members of these schemes. ASB-PPRT loan scheme
since 1992 for hardcore poor. 5.3 Public/Soc
Assistance Monetary other benefits in
kind such as clothing food parcels,
apprenticeship training small business
launching-grants admind by Dept of Social
Welfare, Ministry of National Unity Social
Devt. -- strictly means-tested, low income is
the principle det. of eligibility
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7. Conclusion Policy Recommendation

• Focus on SSN as Government paying attention
  to poverty erad. Thru revising PLIs the
  corresponding programmes. Hopefully will also
  take measures to reduce inequality. Altho
  various forms of soc. sec. SSN systems exist,
  most of them might not be accessible to the poor.
  Thus, govt needs to be more prepared for such
  crisis to assist the poor vulnerables from
  falling back into poverty
• For this purpose, recommends that
• Make quality education training available to
  poornarrow the digital divide bet poor
  non-poor
• Extend tuition vouchers to urban poor

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Conclusion Policy Recommendation

• Promote culture of giving back to society by
  grps based on school networks by sponsoring poor
  students or providing free tuition
• Safeguard monitor existing institutions, eg.
  EPF shd maintain its main function of old age S
  instn mgt should be transparent, accountable
  efficient
• Extend scope of EPF SOCSO to the self-empd
• Enlarge enhance assistance progs for unempd
  retrenchedneed more outlets to channel info
  intermediate bet workers employers
• Consider MTUCs proposal of National Retrenchment
  Fund ensure that retrenchment should be used
  only as a last resort
• Zakat mosque funds could be better mobilised to
  assist the poor.

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THANK YOU