Is The Income Gap Between The B40, M40 And T20 Groups Widening?

Heard about B40, M40 and T20 in the news, but don’t know what they mean? These refer to income groups in Malaysia, where B40 represents the poorest 40%, M40 the middle 40% and T20 the richest 20%. These groups are then divided into levels, such as B1, B2, B3, etc. In 2019, the average income was RM 1,849 for households at the lowest level and RM 24,293 for the highest level. That’s a pretty big difference – the question is, is this gap growing over time? Here’s what you need to know.

How are the B40, M40 and T20 classified?

Malaysia’s Department of Statistics (DOSM) recently released its 2019 Household Income and Basic Equipment Survey Report, which provides updated figures to classify these income groups. Note that these figures refer to household income (the average household size in 2019 was 3.8 people) and not to individual income:

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The Household Income Report also raised Malaysia’s average Poverty Line Income (LIP) to RM 2,208, up from RM 980 in 2016. The new measure brings Malaysia’s absolute poverty rate to 5.6 percent. in 2019. This means that nearly 6 out of 100 households in Malaysia could not afford basic needs like food, shelter and clothing. These income classifications are important because they help the government determine how to allocate aid programs.

How much do T20, M40 and B40 households earn?

The national average monthly income in Malaysia last year was RM 7,901. But the average monthly income varies by income group :! Function () {“use strict”; window.addEventListener (“message”, (function (a) {if (void 0! == a.data[“datawrapper-height”]) for (var e in a.data[“datawrapper-height”]) {var t = document.getElementById (“datawrapper-chart -” + e) ​​|| document.querySelector (“iframe[src*='”+e+”‘]”); t && (t.style.height = a.data[“datawrapper-height”][e]+ “px”)}}))} (); The income group you belong to also depends on the state you live in :! Function () {“use strict”; window.addEventListener (“message”, (function (a) {if (void 0! == a. Data[“datawrapper-height”]) for (var e in a.data[“datawrapper-height”]) {var t = document.getElementById (“datawrapper-chart -” + e) ​​|| document.querySelector (“iframe[src*='”+e+”‘]”); t && (t.style.height = a.data[“datawrapper-height”][e]+ “px”)}}))} (); The income differences between each state can be huge. In states like Kelantan, Perlis, and Pahang, earning a T20 salary could mean earning a salary similar to that of the M40 group in Kuala Lumpur.

Is the income gap widening?

There is a large income gap between the lowest and highest income groups. Is this gap getting worse? Let’s look at the facts:

1. Income inequality has fallen since the 1970s

The State Of Households 2018 report from the Khazanah Research Institute (KRI) stated that household income in Malaysia increased steadily from 1970 to 2018. Malaysia’s Gini coefficient (a measure used to represent income inequality – a higher number means that the income gap is larger) decreased from 0.513 to 0.399. This means that over the past decades household income has increased and income inequality has decreased.

2. Why doesn’t it look like income inequality has improved?

Khazanah Research Institute, State of Households 2018

Okay, if the official statistics show that income inequality has decreased, why does it feel like the rich are getting richer and the rest of us are struggling to catch up? According to KRI, this is because of the difference between the relative deviation and the absolute deviation. For example:

  • Low-income household earning RM 1,000 last year tripled their income to RM 3,000 this year
  • High-income household earning RM 10,000 last year doubles income to RM 20,000 this year

Last year, the high-income household would have earned 10 times more than the low-income household. This year, the high-income household earns 6.7 times the low-income household, lowering the Gini coefficient. This means that the relative gap has narrowed. But as the absolute gap (an income difference of RM9,000 last year compared to RM17,000 this year) has widened, it does not appear that inequality has improved.

3. There has been an increase recently

Although income inequality has improved over the past decades, the latest DOSM household report indicates that there has been an increase in inequality. It rose to 0.407 in 2019, from 0.399 in 2016.

Are Malaysians Socio-Economically Mobile?

Socio-economic mobility refers to your ability to move from one socio-economic group to another. In other words, how easily can households of B40, M40 or T20 move to another income group? The Khazanah Research Institute’s 2016 report on socio-economic mobility compared adults born between 1945 and 1960 to their eldest born between 1975 and 1990. Their results suggest that Malaysia has been relatively socially mobile during these two generations. Only 19% of a child’s income was associated with the income of its parents. But that doesn’t necessarily mean upward mobility – among those surveyed, nearly 3 in 4 children born to parents in the bottom earnings quintile increased, while 2 in 3 children born in the top quintile declined. “Children born to parents in the bottom income quintile generally do not remain ‘poorer’ as adults, while those born to parents in the top income quintile do not necessarily remain ‘richer’ as they grow older. adult, ”the report says. Factors such as education, gender, race, and geography (urban or rural) affect a child’s likelihood of upward mobility.

One warning (the size of a pandemic)

The TLDR is that income inequality has declined since the 1970s, although there has been an increase since 2016. But while the relative income gap has narrowed, the absolute gap has widened, which could lead to the perception that income inequality has not improved over the last period. a few decades. However, it should be noted that the coronavirus pandemic is believed to have affected the income and spending habits of many Malaysians this year. We don’t yet know the full extent of its effects, but so far the unemployment rate has risen to 5.3% in May (from 3.2% in January), and one in three employees has declared a pay cut greater than 30%. B40 and M40 households were more vulnerable to job loss than T20 households. This could widen the income gap even further in the short term.

The post The widening of the income gap between groups B40, M40 and T20? first appeared on iMoney Malaysia.

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