Malaysia has the highest rate of income inequality among peers nearing high-income status. Intra-ethnic disparity is the biggest contributor despite the widely held belief that wage gaps between races are bigger. This is according to the World Bank’s latest report released on 5 February 2025.
The Bank said despite pro-poor growth, income is still highly concentrated at the top. Income has grown more rapidly for the poor and for people in the middle of the income distribution, but because they started from a low base, absolute gaps remain. As of 2022, the bottom 20 per cent of people in Malaysia held less than 6 per cent of income, up from just 4.6 per cent in 2004. The share of income held by the Top 20 per cent of the distribution fell from 46 per cent in 2004 to 41 per cent in 2022. In 2022, labour share of income was likely below the 45 per cent target set by the government as part of the Madani Economic Framework.
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\Employment remains the main source of income for Malaysian households. Salaries and wages represent 50–60 per cent of household income, and self-employment income accounts for almost 40 per cent, the Bank noted. The rich, on the other hand, derive additional income from capital, which is not taxed. Capital ownership is highly concentrated among top income earners, with the richest 10 per cent of Malaysian households holding 70 per cent of total wealth, meaning that this outsized income share benefits the richer few. This concentration of wealth and income is reinforced by the differences in skills premium across income distribution.
The premium to higher education, be it vocational or university, typically results in an upward slope, which means that for the same level of education, richer workers in Malaysia receive a larger return than poorer workers do. Several factors explain the lower return for poor workers.
One of them is that poorer children learn less at school than richer children and tend not to pursue fields that yield high salaries. Many also do not graduate with the skills that are in demand and are usually forced to take up the same types of jobs. Decline in household size among the poor is also likely a factor.
The Bank noted fertility rates, and consequently household size, have plummeted in Malaysia, especially among the poor. This trend contributed to the decline in inequality in 2004–14, when average household size fell 5.3 per cent. The decline was much greater for households in the poorest 40 per cent of the distribution, particularly households in the poorest 10 per cent, among which average household size fell almost 10 per cent.
The report said the current inequality level means that the high-income prosperity is not yet within the reach of many people in the country. At 39, Malaysia’s Gini index, a measure of the distribution of income across a population, is higher than that of economies that recently achieved high-income status (mean of 31) and established high-income countries (mean of 30). Malaysia has the third-highest Gini (in the region) after the Philippines and Thailand. (That is a measure of inequality, the higher the figure the more inequal is income distribution).
We are so focused on growth, that inequalities within each race is causing some social tension. That together with corruption and cost of living are the profound problems facing Malaysia. Madani has not got off the firing line in all three areas and remain distracted by race and religion (or is it ham and socks)?
Reference:
Malaysia’s latest income inequality trends explained, according to the World Bank, Syed Jaymal Zahiid, Malay Mail, 5 Feb 2025
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