Sunday, 23 February 2020

Income inequality in Singapore falls to lowest level since 2001 as household incomes rise in 2019

Department of Statistics' Key Household Income Trends 2019 report
Income inequality narrows as top-tier's earnings freeze
Govt transfers also helped low-earners close the gap with others in 2019, report shows
By Toh Wen Li, The Straits Times, 21 Feb 2020

Income inequality here tapered to its narrowest in almost two decades, after income for the bulk of households rose by up to 5.6 per cent last year while the top 10 per cent saw their income grow just 0.4 per cent.

The Gini coefficient - which measures income inequality from zero to 1, with zero being most equal - fell to 0.452 last year, lower than 0.458 in 2018 and the lowest since 2001, according to the Department of Statistics' Key Household Income Trends report released yesterday.

Government transfers and taxes whittled the Gini coefficient down further to 0.398.

Experts cite government efforts to boost the income of low-wage earners as a possible reason.

Conversely, a sluggish economy has disproportionately affected high earners, many of whom are in managerial or business positions.

The bulk of their compensation is in the form of bonus, which would take a hit if the economy is not doing well, said DBS Bank's senior economist Irvin Seah.

Last year, Singapore's economy expanded by 0.7 per cent year on year, far below the 3.1 per cent expansion in 2018.

OCBC Bank's chief economist Selena Ling said that some sectors, such as finance and technology, are "more tied to market forces... and more vulnerable to swings in economic cycles".

Meanwhile, the social safety net for the low-income has been strengthened. "There have been many schemes to raise the minimum wages for certain professions, such as security guards and cleaners," said Ms Ling, referring to progressive wage models which set entry-level basic monthly pay.

Households in the first to 90th percentile income groups saw real income growth of 3.5 to 5.6 per cent.

In addition, the quantum of transfers such as goods and services tax vouchers, and transport subsidies has been increasing, she said.

In the past two decades, Singapore's Gini coefficient - before taking into account government taxes and transfers - peaked at 0.482 in 2007. It then declined gradually, before rising again in 2012. It has plateaued at around 0.46 in recent years.

Across the board, Singapore families earned more from work per person last year. The median monthly household income from work per household member rose to $2,925 last year, a 4.3 per cent increase after accounting for inflation.

This includes Central Provident Fund contributions from employers but excludes income from sources such as dividends and rent.

The bottom 10 per cent also saw their income grow relatively faster over the last five years.

Between 2014 and last year, the average monthly household income from work for each member in households in the bottom 10 per cent rose 23 per cent.

This is far higher than the 13.2 per cent growth for the top 10 per cent and contributed to the fall in the Gini coefficient, said Mr Seah.

Last year, families with at least one working member - which make up 86.8 per cent of households here - saw median monthly household income from work grow to $9,425, or 1 per cent in real terms, compared to 2.6 per cent in real terms in 2018.

The report also said that resident households, which include those with no working person, received $4,682 for each family member on average from various government schemes last year. Those living in one-and two-room HDB flats received $10,548 per household member on average - more than double that received by resident households in other types of housing.

With additional reporting by Yuen Sin

Household income of top 10% rose by just 0.4% in 2019
Figure lower than that for most other families, which grew by between 3.5% and 5.6%
By Toh Wen Li, The Straits Times, 21 Feb 2020

The top 10 per cent of families in Singapore saw their average household income rise by just 0.4 per cent last year - much lower than the bulk of households here, which saw growth of between 3.5 per cent and 5.6 per cent.

These figures, released yesterday in an annual report by the Department of Statistics, describe the real growth in average household income from work per household member, in families with at least one working member.

Experts said the results published in the report - which also found that income inequality in Singapore had fallen to its lowest in nearly two decades - were due to the Government's efforts to boost the income of low-wage earners.

Meanwhile, the slower income growth for top income earners might be blamed on the sluggish economy. Singapore's economy grew by 0.7 per cent year on year in 2019, down from 3.1 per cent in 2018.

Mr Song Seng Wun, an economist at CIMB Private Banking, said the trade war could have had an indirect impact on those in the top income bracket.

"If we look at civil servants' annual wage increments or bonuses, it's tied to GDP (gross domestic product). And GDP performance is tied to whether we get trade friction..."

He noted that the relatively higher growth rates in the middle-income group could partly be the result of the Government encouraging businesses to hire more locals.

Some suggested there may be other reasons for growth in income, such as falling household sizes.

Last year, the average household size among resident employed households fell to 3.36 people, from 3.44 in 2018 - which could translate to a higher household income per member.

Associate professor of economics Walter Theseira, of the Singapore University of Social Sciences, added that most households, except for those in the highest income brackets, have seen an increase in the average number of working members.

"Among the very top decile of household income earners, you actually see that the average number of people in the household working has actually gone down over the last 10 years. That, by itself, moderates somewhat the rise in household income inequality."

Noting that in the West, some extremely well-off households have only one working member because they do not need the extra income - something that has been described as the "trophy wife (or husband) phenomenon - he said: "I think high-income earners in Singapore question whether it is really necessary for both members to work, especially when their children are in certain critical ages."

In yesterday's report, "household income from work" includes Central Provident Fund contributions from employers, but excludes income from sources such as dividends and rent.

"It would be surprising," added Prof Theseira, "if you looked at individuals in the top brackets, and found that the (total) income really had slowed. Because that would be a strong counterpoint to the trend we have observed over the past couple of decades - that more and more of the returns go to them.

"A broader concern is whether there have been more and more opportunities for high-income earners to shift their income over to capital - which is a lot harder for countries to capture and monitor, compared with work income."

Mr Song added that the bottom 10 per cent, which last year had an average monthly household income of $597 per household member, might have seen more pronounced growth as "the base they are coming from is much lower".

DBS Bank senior economist Irvin Seah noted that the higher income rates for lower-to middle-income groups could be signs that efforts to upskill workers and enhance productivity have borne fruit.

He also acknowledged that much of the report deals with families with at least one working member - forming 86.8 per cent of households here.

This excludes those whose sole breadwinner has been retrenched, or where all members are retired and, possibly, elderly and poor.

So, while the reported fall in levels of income inequality is encouraging, "it does not show the full picture".

Don’t take international comparisons of income inequality at face value as different data used to derive figures: Experts
Don't take international comparisons of income inequality at face value, they caution
By Yuen Sin, The Straits Times, 22 Feb 2020

Singapore's efforts to address income inequality appear to be bearing fruit, but it still lags behind several developed countries on this front.

After factoring in taxes and transfers, and adjusting for different household sizes using a method called square root scale, Singapore's Gini coefficient was 0.352 last year.

The Gini coefficient measures income inequality from zero to one, with zero being most equal.

Singapore's score means that its income inequality is less severe than that in the United Kingdom and the United States.

However, several developed Organisation for Economic Cooperation and Development (OECD) countries, such as Japan, Germany and Sweden, have even less income inequality than Singapore does.

Differences in economic and wage structure, as well as social and tax policy, could account for why Singapore has a relatively higher measure of inequality, alongside the UK and the US, said experts.

But different countries also rely on different data to compute the Gini coefficient, they added, cautioning against taking such international comparisons at face value.

The UK and US may rank higher than other OECD countries in terms of income inequality as they are home to major financial centres.

"This attracts top banks and firms, but it will also come at the expense of equality as not all parts of the country will benefit," said Dr Chua Hak Bin, senior economist at Maybank Kim Eng.

Dr Mathew Mathews, head of the Institute of Policy Studies' Social Lab, said that Singapore has also favoured a policy of low taxation which encourages those with high earning potential to remain in the Republic. This could help explain the higher Gini figure. Singapore is also unique as it is a city state, he added. "In quite a few countries, the Gini in their most prosperous cities might be much larger."

But Singapore has been more aggressive in addressing inequality than the US and UK, which have gone through austerity and tax cuts in recent years, thus its lower ranking than the two, said Associate Professor Irene Ng of the National University of Singapore's Department of Social Work.

Labour economist Walter Theseira said the strong involvement of the state and labour unions in industries in Europe could be another reason wages are generally flatter there. The unions make sure that top executives are not paid excessively more than workers.

In 2018, Finance Minister Heng Swee Keat also said Singapore's Gini figure is higher than that of some OECD countries that typically impose higher overall taxes on the working population, in particular on middle-income earners, to finance large social transfers.

Singapore's approach, on the other hand, is to keep the tax burden light and provide targeted support for people of lower income, he added.

Assistant Professor Ng Kok Hoe of the Lee Kuan Yew School of Public Policy, however, pointed out that the OECD Gini figures are based on total disposable income and on all households, while the figure for Singapore is based on work income only. It excludes non-work income, such as that from investments. It also does not include non-working households.

Associate Professor Theseira said that if non-work income is factored in, this would be likely to increase the Gini coefficient for Singapore. "Capital income is much more unevenly distributed than work income."

Including non-working households would also lead to a higher Gini coefficient as there may be more households with low incomes within the overall distribution, said Prof Ng Kok Hoe.

It is important to continue lowering the Gini coefficient, given Singapore's relatively unequal position compared with other developed countries, said Prof Irene Ng. "There is room for more redistribution, and for more measures to address labour market inequalities."

Less income inequality in Singapore, but issue not licked yet
By Yuen Sin, The Straits Times, 21 Feb 2020

The latest figures on household incomes, released yesterday, show that government measures and programmes put in place over the past decade have made a decisive impact in narrowing the income gap.

The Gini coefficient - which measures income inequality from 0 to 1, with 0 being most equal - fell to 0.452 last year, the lowest since 2001, figures from the Department of Statistics' Key Household Income Trends report show.

This forms part of a general downward trend from a peak of 0.482 in 2007.

The narrowing gap can be attributed in part to a myriad of schemes - including the Progressive Wage Model (PWM) and the Wage Credit Scheme, introduced in 2012 and 2013 respectively - which have given the incomes of low-wage households a much needed boost.

According to Ministry of Manpower (MOM) data released this year, the annual average monthly income growth for residents in the bottom 20 per cent income group has outpaced that of those in the median income group.

Those in the lower-income group saw incomes grow by 4.4 per cent over the last five years, compared with 3.8 per cent for the median group.

Taking a longer-term view, workers in the bottom half of the income spectrum have also seen higher wage growth than those in the top half. The average monthly income per member has grown cumulatively by 43.9 per cent to 49 per cent over the past decade (2009 to 2019) for the bottom half of Singapore households, compared with 30.3 per cent to 43.4 per cent for those in the top half.

This impact is further felt when fiscal transfers to redistribute wealth to the less well-off are taken into account. Government transfers and taxes further reduced the Gini coefficient last year to 0.398, going below 0.4 for the first time in at least two decades.

"What we must recognise is that this is a reflection of state policy to redistribute resources to the less well-off... It reflects our national commitment to deal with inequality," said Dr Gillian Koh, deputy director for research at the Institute of Policy Studies.

The proposed Budget measures introduced on Tuesday will do even more to help with this, she noted, citing the higher Silver Support payouts for low-income elderly folk to GST vouchers and U-save measures.

But with slowing economic growth and Singapore now reeling from the impact of the ongoing coronavirus outbreak, it remains to be seen if wage growth for the lower-income group can be sustained, said Maybank Kim Eng senior economist Chua Hak Bin.

Singapore's economy grew by 0.7 per cent last year, based on flash estimates, down from 3.1 per cent in 2018.

"While the Government has come up with measures to help lower-income groups, you can't expect the same kind of gains across the board. Companies are struggling, and the outbreak has been hitting sectors where there are low-wage jobs, such as retail and the food and beverage industry," said Dr Chua.

It is also important to keep in mind that income is just one measure of inequality, and the Gini coefficient on its own is insufficient to tell if Singapore's efforts to tackle the issue of inequality and guard against social stratification have been paying off.

Yes, the growth in average monthly income per member for the top 10 per cent of households has tapered off to just 0.4 per cent last year, in contrast to the 4.4 per cent increase for those in the bottom decile.

But Singapore Management University professor of sociology (practice) Paulin Straughan said this Gini measure is a "crude statistic" that does not capture other types of inequalities that may continue to set this more well-off group apart from those who are poorer, such as wealth, social and cultural capital.

"Not being connected to the right networks, or people with the resources who can help you, can still stand in the way of upward mobility," said Prof Straughan.

To stave off inequality in the longer term, it is important to improve Singapore's economic structure so that there are good jobs and career pathways for all, and not just those who are graduates in our midst, said Dr Koh.

How well businesses can use technology to improve productivity, which would be reflected in wage growth, would also play a part, said CIMB Private Banking economist Song Seng Wun.

It is still too early to say, based on the latest Gini coefficient, that social inequality has been successfully addressed in Singapore.

But government policies in recent years have recognised the urgency of the need to guard against social stratification, with many recent schemes focused not just on lifting wages but also improving access to education and training.

Singapore is moving in the right direction.

No comments:

Post a Comment