The earnings gap between Malaysia’s top 20 per cent and their countrymen has doubled, putting more Malaysians in relative poverty. FILE PIC

AN observation of two neighbourhoods in Peninsular Malaysia will clearly show how a person’s socioeconomic status is correlated to both economic and social well-being.

Put it another way, even though income is not the only factor that can contribute to a person’s happiness index, it surely plays a crucial role in determining the kind of neighbourhood a person can live in.

Taman Tun Dr Ismail in Kuala Lumpur (TTDI), for example, is an embodiment of an upscale neighbourhood that enjoys excellent public amenities.

What is more, TTDI is located close to other well-off townships such as Bandar Utama, Damansara Utama, Mutiara Damansara, Bukit Kiara and Sri Hartamas.

It is, therefore, not an exaggeration to say that the prices of homes in these townships are beyond the reach of many wage earners in Malaysia.

This just goes to show the exclusivity of these neighbourhoods and that the amenities needed to enjoy a comfortable life are not evenly distributed.

The prosperity and well-being in TTDI and the surrounding neighbourhoods are in stark contrast with the situation in Taman Tun Sardon Pulau Pinang (TTS).

TTS is located five kilometres south of George Town and its next-door neighbour is Minden Heights, an upscale housing estate. Built in the early 1980s, these low-cost flats in TTS were constructed to house low-income families.

Life in TTS can be solitary, poor, nasty, brutish, and short.

Of course, rising income inequality is only one of the many reasons why the inhabitants of these two townships are living in two starkly different worlds but it is an important one that is often neglected by policymakers.

There is substantial evidence that the inter-household inequality in Malaysia has importantly contributed to the fall in the personal savings rate and the rise in personal debt and higher labour supply.

Aided by the easy availability of credit, low- and middle-income households attempted to keep up with the higher consumption levels of top-income households.

Having said that, the evidence that low-income households were trying to keep up with the consumption of the top-income earners is less substantial than the evidence that they sought to maintain their living standards in the face of stagnant or declining incomes.

Historically, the unprecedented surge in economic prosperity was the result of the industrial revolution.

Nevertheless, it made some of us richer and others poorer.

The industrial revolution also opened up the gap between the industrial world and the rest.

Wealth came with tremendous social cost, both globally and domestically.

As the case of TTS demonstrates, inequality has a negative effect on social well-being.

It is a well-known fact that wealth is not trickling down, and that wealth is heavily concentrated in the hands of the top one per cent families.

In the US, for example, three quarters of all income from 2002 to 2010 went to the top one per cent of the population.

This translated into the top 0.01 US family earning US$23.8 million in 2010 whereas the bottom 90 per cent made an average of US$29,840.

On the home front, despite the reduction in the official income inequality, the absolute earnings’ gap between Malaysia’s top 20 per cent and their countrymen has nearly doubled, putting more Malaysians in relative poverty.

Khazanah Research Institute has rightly argued that policymakers have to think beyond the Gini coefficient.

In addition, KRI has pointed out that households with an income below RM2,000 per month spent 94.8 per cent of it on consumption while families earning above RM15,000 monthly spent only 45 per cent of their incomes on consumption.

What this phenomenon translated into is worrying: for households earning below RM2,000, the income remaining after accounting for inflation was only RM76 in 2016, down from RM124 in 2014.

Not only that, in the past two decades, the actual differences in household income, adjusted to inflation, have almost doubled between the top 20 per cent households (T20) and the middle and bottom 40 per cent (M40 and B40) households.

While official figures have continuously portrayed that incidences of poverty are almost non-existent, relative poverty — defined as earning less than 60 per cent of the median income — has increased by more than 50 per cent to three million households since 1995.

This means 40 per cent of the country’s 7.5 million households are relatively poor. What we are witnessing in Malaysia is similar to what’s happening in the US.

The top-income earners are accumulating more and more wealth while the rest are struggling to make ends meet.

KRI’s study has demonstrated that the T20 saw their average household incomes rise from about RM9,000 to RM16,000 between 1995 and 2016 while the income for the M40 grew from around RM3,000 to RM6,000 and that for B40 went up from about RM1,000 to RM2,000.

This translates to a gap of RM6,000 increasing to RM10,000 between the T20 and M40, and RM8,000 to RM14,000 between the T20 and B40 before adjusting for inflation.

Let’s hope that the Shared Prosperity Vision 2030 of the current government will give a glimmer of hope to the downtrodden.

The writer is associate professor and director at the Center for Policy Research and International Studies, Universiti Sains Malaysia