We have always wondered how the income levels of Malaysian households have changed over time. This curiosity has intensified in recent years as Malaysians experienced various economic crises, for example, the Asian financial crisis (AFC) in 1998, the global financial crisis (GFC) in 2008/09, the collapse in oil prices in 2014/15, and the ongoing Covid-19 crisis.
In particular, the income trends of different population groups never fail to catch people’s attention. Among the questions that often come to mind are: how fast is our income growing vis-à-vis the general economy? Which group of the population is seeing the largest or smallest increase in their incomes? What are the income growth trends for the rural and urban populations?
Recent findings of the Household Income & Basic Amenities Survey Report 2019, released by the Department of Statistics Malaysia (DOSM), are useful in answering the above. DOSM has neatly summarised the key findings on its website — the median income of Malaysian households grew by 3.9% per annum (pa) between 2016 and 2019 to RM5,873 per month per household, slower than in the 2014-16 period, when it rose by 6.6% pa. A breakdown shows that urban households saw their median incomes climbing 3.8% pa, while those in rural areas experienced a slower increase of 3.3% pa between 2016 and 2019.
With robust economic activities taking place in the vicinity of Kuala Lumpur, it is not surprising that the highest median income households reside in Wilayah Persekutuan (WP) Kuala Lumpur (about RM10,549 per month per household). Households in WP Putrajaya came in at second place (RM9,983 per month per household). Interestingly, nine states — including two East Coast states — exceeded the national median growth rate. They are Terengganu, WP Kuala Lumpur, Kelantan, Penang, Johor, Selangor, WP Labuan, WP Putrajaya and Kedah.
Then there is the statistics on income distribution, which is no less interesting. The group that earns the most income — the top 20% (T20) — constitutes about 46.8% of total income in Malaysia. In other words, the top one-fifth of income earners generated almost half of total household income in Malaysia. This ratio was slightly lower in 2016 at 46.2%. Meanwhile, the group that earns the least — the bottom 40% (B40) — constituted only about 16% of total income in 2019. This was lower than 2016’s ratio of 16.4%, meaning that the share of B40 income to total income among Malaysians has declined marginally.
Researchers who have been compiling household income statistics over the years would have also come across other interesting facts. For instance, in the 25 years between 1995 and 2019, Malaysia’s median household income expanded by about 6.2% pa on a compound annual growth rate (CAGR) basis. This is slightly lower than the country’s nominal GDP growth of 7.7% pa during the period. Those in rural areas saw their median incomes rising by 5.8% pa, while those in urban centres experienced a slightly lower growth of 5.5% pa during the period.
Stripping it down further enables one to see more clearly how incomes changed after economic crises. For instance, median household income, which grew at a double-digit pace of 11.9% pa between 1995 and 1997 before the AFC erupted in 1998, moderated sharply to 4.5% post-AFC (2002-07). Both urban and rural household incomes experienced sharp decelerations in their growth rates, from 12.6% pa to 4% pa for urban households and from 11.8% to 5.8% for rural households. This signifies the deep impact of the AFC on households’ income levels during the period.
Then came the GFC in 2008/09. Although the economy took a hit and contracted by 1.5% in real terms, the recovery was swift, and Malaysia’s real GDP growth accelerated to 7.4% in 2010 and 5.3% in 2011. As a result, Malaysian households’ median income growth surged to 8.5% pa between 2009 and 2012. Unfortunately, the global crude oil price collapse that started in mid-2014 impacted the economy in subsequent years, reversing earlier gains in income levels. This could largely be explained by the spike in the number of unemployed persons following the sharp slowdown in oil and gas-related activities. It is not surprising then that the growth of households’ median income slipped by more than three percentage points to 5.1% pa between 2014 and 2019.
The breakdown of household incomes into urban and rural categories is also worth looking at. Firstly, it is interesting to note that in the past 25 years, rural household incomes generally grew at a slightly stronger pace than those of urban households (rural at 5.8%; urban at 5.5% between 1995 and 2019). This looks positive, considering that rural households have lower incomes vis-à-vis urban households. However, as urban households have to face higher living costs, such slower growth implies greater pressure on the urban poor. This gives rise to the issue of urban poverty.
As mentioned, post-2014 (2014-19), the median income of all groups declined following slower economic growth amid the collapse of global crude oil prices. However, of note is the decline in the growth of rural household median income, which exceeded that of urban households (a drop of 4.7ppt for rural households in the 2014-19 period from 2009-12, compared with a decline of 2.4ppt for urban households). Also, compared with three other periods (1995-97, 2002-07 and 2009-12), 2014-19 was the only period where the growth of rural household median income was significantly slower than the national level — 4.2% pa versus the national level of 5.1% (in 1995-97, it was marginally lower at 11.8% pa compared with the national income growth of 11.9%).
Another point to note is that while the median income for B40 grew strongly by 19.1% pa in the 2012-14 period (M40 at 11.8%,T20 at 8.9%), its growth decelerated sharply to 1.8% pa in 2016-19 (M40 at 4.2%; T20 at 4.6%). Such trends should make us ponder effective policy measures to ensure stronger growth in the incomes of the country’s poorest group going forward.
Nor Zahidi Alias is chief economist at Malaysian Rating Corp Bhd. The views expressed here are his own.