Gap between rich, middle-income earners set to widen further

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Source: Free Malaysia Today

Picture drawn from Free Malaysia Today

PETALING JAYA: The gap between the rich and middle-income earners is set to further widen in Malaysia as the business environment continues to favour those with money and high skills, according to an economist.

Sunway University economics Professor Yeah Kim Leng said these two elements were the main contributing factors to the income gap and inequality.

“Our economy favours those with capital and high skills. Even though there are a lot of jobs in the service and manufacturing industries, those holding mid and low-level jobs have not seen much increase in their wages.

“Prices of food seem to be increasing faster than their salaries,” he told FMT.

He said this was not the case for those with money as they had the capital to invest in stock markets and take part in other forms of investment.

“The rich are also getting richer because of the low-interest rates, allowing them a tremendous increase in liquidity. This has injected higher capacity of cash benefiting the rich,” he explained.

Due to this, he said, the rich would continue to spend money on acquiring luxury cars and high-end properties.

Yeah was also asked to comment on BMW Group recording its best performance in Malaysia with 12,680 units of vehicles delivered in 2017.

It had said this was the seventh consecutive all-time high performance, with sales up 16% from the 10,906 units in 2016. It said Malaysia’s strong performance reflected that of the BMW Group worldwide.

Yeah said the trend was reflective of the spending ability of the rich who made up the top 20% group of the population.

He said the consumption of high-end goods was a positive sign. “It shows the current strength of the economy and at the same time, it also shows the well-to-do are able to spend on high-end products.”

However, the concern is that the middle and low-income groups are having problems coping with the higher cost of living.

“We have a problem of inequality within the country,” Yeah said.

He said although the bulk of job creation in Malaysia was in the low to middle range, the wages had not increased over the years.

“The salary hike seems to be more rapid for those with data analytics, artificial intelligence, robotics, or computer programming skills compared with the majority.”

Yeah said one way to reverse the trend was by getting more Malaysians to acquire better skills to break the cycle.

“The key measure is for prosperity to cascade to lower-income groups,” he said.

This can only be achieved if there are changes in wages for different skill categories, and by acquiring more skills.

Malaysians are categorised into three different income groups: Top 20% (T20), Middle 40% (M40), and Bottom 40% (B40). Over the years, the bar for each group’s income level has increased, serving as an indicator of economic growth.

The Department of Statistics Malaysia has said to be in the T20 group, a household needs to earn at least RM13,148 while the M40 and B40 groups have moved their bars up to RM6,275 and RM3,000 respectively.

Although the income level for each group has improved over the past years, middle-income earners are also facing escalating costs of living due to inflation and slower wage growth.