Income inequality may be increasing again

I don’t know how Leong Sze Hian does it. Does he sit in front of a computer, staring at the Ministry of Manpower website, waiting for updates? The same day that this ministry released its Singapore Workforce 2010 report, he knew about it and even managed to write a piece on it for the Online Citizen. See Over 30% earn less than $1,200?

I am grateful for him drawing attention to the ministry’s report, for indeed it makes interesting reading, to say the least.

In his article, Leong’s point is that there is a large number — over 30 percent, he suggests — of people falling into one of these categories:

(a) those earning less than S$1,200 per month, based on 2001 dollars;

(b) those unemployed and looking for work;

(c) those unemployed and too discouraged to even look for work.

I don’t intend to cover the same ground, but to take the topic a little further. And it is this:  The ministry’s data suggests that income inequality is rising again, though that conclusion cannot be reached by relying on the Workforce 2010 report alone, but from cross-referencing the ministry’s Earnings and Wages data with the Workforce report.

* * * * *

First however, I would like to present  a few key facts from the Workforce 2010 report, which is based on a survey conducted in the middle of this year of citizens and Permanent Residents. In other words, the data discussed here excludes Work Permit and Employment Pass holders.

The median income of all employed persons (citizens and PRs), full-time and part-time, is S$2,500. This means exactly half of employed persons earn below S$2,500 and half above the median.

21 percent earn below S$1,200 per month.

The ministry’s report contains more details distinguishing full-time from part-time, but as Leong also pointed out, with “part-time” defined as working as much as 35 hours a week, it is pretty meaningless applying this distinction. Here, I too am largely ignoring it.

The actual number of people earning under $1,200 in the middle of this year was 400,100. Two thirds of them (262,700) work full-time (i.e. more than 35 hours a week) to earn what they earn, i.e. under $1,200.

* * * * *

Paragraph 3.6 of the Workforce 2010 report was what got me particularly interested.

First, it reported that the median income for all employed persons (i.e. full-time and part-time citizens and PRs) rose 3.3 percent in gross terms 2010 over 2009. Adjusted for inflation, it represented a rise of 1.0 percent.

However, 2009’s median income for all employed persons was 1.2 percent lower than 2008; 1.8 percent lower after adjusting for inflation. This means the median income has not yet recovered to the level of 2008 in terms of purchasing power.

I think Today newspaper painted the situation rather rosily when it wrote:  “CIMB-GK regional economist Song Seng Wun noted that real wage growth was ‘just barely keeping pace with inflation’.” (Today, 1 Dec 2010, Median monthly income goes up)

* * * * *

I then searched for mean incomes and found it in the Manpower ministry’s Earnings and Wages data, hyperlinked above. Using only the Second Quarter mean income (the closest equivalent to the snapshot survey figures used for the mid-2010 Workforce report, I see that 2010 Q2 mean income increased by 5.8 percent over 2009 Q2 mean income. In dollar terms, before adjusting for inflation, it was S$3,819 in 2010 and S$3,609 in 2009. As you can see, it is a bigger increase than that for median income.

That said, one has to be careful because the data are not drawn from identical samples. The median income was based on a mid 2010 survey while the mean income is drawn from Central Provident Fund data for all employed persons (part-time and full-time) but leaving out self-employed persons.

Nonetheless, we can still compare trends over the last decade or more. Here is the data, comparing Second Quarter Mean Incomes (derived from CPF) with mid-year Median incomes (derived from surveys):

Presented graphically, you can see the mean income rising at a steeper slope than median income. What that means in terms of income inequality is discussed below.

The graph also incorporates the Consumer Price Index for the same period. It was 84.9 in 1996, rising to 100.0 in 2009. It indicates that the median income earner has 10 – 20 percent more purchasing power today than he had in the late 1990s. The mean income earner has improved his purchasing power by about one third.

* * * * *

At this point, some readers may need me to explain the significance of “median” and “mean”. Not everybody took classes in statistics.

“Median” I have explained above. It is the figure that is the halfway mark: half the population would be below the figure and half above it.

“Mean” is what the layman calls the “average”. In the case of incomes, it is naturally weighted by the number of persons within the same income band.

Because the distribution of incomes in virtually all societies is skewed, with lots of low-income earners and few higher-income people, there’s always a gap between median and mean. Generally speaking, the more skewed the income distribution, the larger the gap.

Take, for example, countries A and B, each with exactly 1,000 employed persons. They both use the same currency — the Fictional Franc. They have people earning as low as 500 francs a month and at the other end, some (but far fewer) who earn much more.

Both countries have medians of 4,000 francs. Exactly 500 persons in each country earn less than this threshold, exactly 500 earn more than this threshold.

But as you will have noticed from the graph, Country B has a longer “tail” of high-income earners. These high-income earners pull up the mean or average. Thus, while the mean for Country A is 5,051 francs, that for Country B is 6,058 francs. You can do the calculation to see for yourself.

Basically, it is this: If the gap between median and mean is increasing, it suggests a widening income spread, though it is not as hard and fast a rule as that — there are other possible, if unlikely, explanations.

Now, look back at Singapore’s figures for 2009 and 2010. Last year, the mean income (S$3,609) was 49.1 percent higher than median income (S$2,420). This year — 2010 — the mean income (S$3,819) is 52.8 percent higher than median income ($2,500). The gap is increasing. Again.

* * * * *

Another clue can be seen from this nugget I found in yesterday’s edition of Today newspaper:

Evidence of [reaping the benefits of reshaping the economy] can be found from the Inland Revenue Authority of Singapore’s annual reports. On a year-on-year basis, the number of residents with assessed income of $100,001 and above has been increasing. There were 132,399, 153,779, 187,856 and 215,467 residents with taxable income of $100,001 and more in the Years of Assessment 2006, 2007, 2008 and 2009, respectively. Note also that the number did not fall in the recessionary period from 2008 to last year.

— Today, 3 Dec 2010, Reaping the benefits of wealth creation

We discussed above how median income was rising only marginally, yet the the number of residents with taxable income greater than $100,000 ballooned 62.7 percent from 132,399 to 215,467 over four years, two of which saw a recession. Does that not suggest a widening income gap too?

A far better measure of income inequality would be to derive a Gini Co-efficient from individual earned incomes. As far as I know, this information is not publicly available. (The Gini Co-efficient occasionally announced by our Statistics Department relates to household income.) I think it is necessary for our Statistics Department and/or Ministry of Manpower to publish more details regarding earned income by income bands, together with a relevant Gini Co-efficient. This especially as circumstantial data highlighted above suggests a reason to be concerned.

15 Responses to “Income inequality may be increasing again”


  1. 1 yuen 5 December 2010 at 11:05

    there is no “may be” about it; inequality -is- increasing, not just because of income difference, but also because of price increases and other factors that hit particular social segments, e.g., recent entrants to the job market who need to pay more for properties, support parents who live longer and need higher medical expenses, and raise children who want more “things” than children used to

    • 2 yawningbread 5 December 2010 at 12:10

      The article was about income. You’re talking about costs.

      • 3 tangerine 5 December 2010 at 12:56

        Costs have an impact on *real* income, Alex. If the price of the basket of goods consumed by the lower-middle class is increasing at a greater rate than that of the upper-class, then the disparity between real income levels will be likewise increasing.

        That being said, there is no evidence that the lower-class is suffering disproportionately from the effects of inflation.

  2. 4 yuen 5 December 2010 at 12:52

    which is more significant? people grumble about minister’s salaries, and get told “GDP increased x%; your medium income rose by $80 a month; everyone better off”… but they look at their own bank accounts and credit card bills, and grumble even more

  3. 5 KiWeTO 5 December 2010 at 14:37

    Singapore – a wannabe first-amongst-cities in a country without other cities.

    We can never become a New York, London, Paris, Tokyo nor Shanghai as long as we do not have the equivalent of Atlanta, Birmingham, Marseilles, Osaka, nor Chengdu. Where do those that find difficulty eking a living in the first-city go on this little red dot?

    As a city, we have to bear the unefficient producers of labour. Other first cities of this world just allow market forces to drive inefficient producers of labour out of their city. This is the heart of the SG conundrum. How do we give those who cannot run as fast a fair opportunity at life?

    The cost of living in Joo Seng isn’t that much different from the cost of living in Lavender. Beyond the cost of housing (which is offset by additional travel costs if one works in the central hub), everything else costs nearly the same.

    Thus this GINI can only but grow larger.

    Interesting to see that the >100k taxable persons have increased. We have more rich people happily spending money, but our regular plumber Joe doesn’t seem to be getting any more in his slice from the now larger GdP pie, just higher cost-of-living.

    About the fictional franc example, it might have been much better highlighted if you had done a decreasing number of persons in example one, and flipped the data around so that example two had the same numbers in an increasing manner (where in Example1-the highest number of income earners are earning 500 and in example2-the highest number are in 39,500.)

    This would show how the mean and median would be exactly the same, but the societal balance would be all screwed up.
    (or not, if we contemplate the GINI of Tax-exile-haven Monaco).

    Any discussion of statistics with mode,median or mean missing is incomplete. We end up discussing a statistical curve that we cannot see. Such obfuscation only detracts and insults the common man. Then again, power trips arise from informational asymmetry.

    I think the UN & researchers should start measuring GINIs in terms of cities rather than countries.

    E.o.M.

  4. 6 Perspective 5 December 2010 at 19:44

    Whether income inequality may be increasing or not is not the issue. If it is, it is just a bad side effect of our economic policy and growth.

    Just like certain medicine, it may have some bad side effects or risks. But if it is manageable or low, it is still acceptable. You have to weigh it against the good effects of the medicine, which may be more important or critical.

    So I think the current economic policies may be more critical and important for Singapore, as long as the downside of income inequality arising and other negative effects are kept under control and manageable, which is the case so far, as evident from the social peace and political stability and outward signs of prosperity.

    You can’t have a perfect system, there are bound to be some bad aspects. But the good aspects must outweigh the bad aspects.

    By the way good aspect does not necessaily mean it is good for the individual but for the nation, eg like National Service for Singaporeans males.

  5. 8 Really? 6 December 2010 at 00:27

    Can’t help it but to say this. What Perspective wrote is exactly the rosy picture that a govt spokesperson would paint with broad brush motherhood statements that tells you everything is taken care of and will be just fine.

  6. 9 Singaporean 6 December 2010 at 07:25

    What Perspective meant was “as long as I myself am fine, I don’t really care about the less well-off. They can be ‘collateral damage’ of the globalization process, for all I care.”

    Such selfish mindset, often hidden behind highfalutin statements, will eventually come back to haunt those who harboured them.

    • 10 KiWeTO 6 December 2010 at 09:05

      Given that it is the very same ‘society’ that enables Perspective feel that he/she to be fine where he/she is, he forgets that it is on the backs of the less well-off’s cheaper than necessary labour that he/she enjoys his pleasures.

      There are always downsides to any policy. The question to be asked is are the downsides even necessary to begin with? Is a slower rate of tax revenue growth NOT good for this nation?

      E.o.M.

  7. 11 Rusty 6 December 2010 at 07:29

    Perspective’s comments (explained in simpler terms)

    “as evident from the social peace and political stability and outward signs of prosperity” =

    (1) According to Straits “good news only” Times, all is well in Singapore. If there’s any poverty, it does not exist if it doesn’t appear in the ST.

    (2) My social circle and myself are all fine under the current regime.

    “You can’t have a perfect system, there are bound to be some bad aspects. But the good aspects must outweigh the bad aspects.” =

    (3) I am doing well under the current system. Why change it?

  8. 12 yuen 6 December 2010 at 10:24

    what do YB blog readers think about raising retirement age? no doubt most people near retirement like the idea, but it reduces job opportunities for young people; now if we are short of young workers, then this is not a problem; however, if foreign workers are imported, then reduced openings and increased competition come together and must be quite hard on the young generation

    • 13 Inequality as much as subsistence 7 December 2010 at 00:05

      I feel that the retirement age does not accurately reflect one’s true retirement. It merely serves as a policy benchmark which might not be in touch with diverse employment realities. Instead, a better barometer could be the mean and median age that Singaporeans attain financial independence (no debts, savings+investments of at least x number of years of one’s living costs adjusted for inflation).

      An equally, if not more, important issue would be raising the national birth rate.

      Coming back to the topic at hand, income inequality also needs to be seen in terms of growing living costs as tangerine has mentioned. It might be instructive to look at the Consumer Price Index(CPI).

      http://www.thegovmonitor.com/world_news/asia/singapore-releases-august-2010-consumer-price-index-37410.html

      This is the growth in median income as stated by YB;

      “First, it reported that the median income for all employed persons (i.e. full-time and part-time citizens and PRs) rose 3.3 percent in gross terms 2010 over 2009. Adjusted for inflation, it represented a rise of 1.0 percent.”

      According to thegovmonitor.com, the CPI has risen by 3.8% from July 2009 to July 2010. Moreover, MAS has given the CPI for the 3rd quarter of this year. It has increased by 3.4% from the same period last year.

      http://www.mas.gov.sg/resource/eco_research/eco_dev_ana/Recent_Economic_Developments.pdf

      As such, growing income inequality is exacerbated by a widening income-cost gap. The double-whammy could be this: The rich get richer faster and the less rich might feel their wallets getting smaller. It is both psychologically and financially humbling.

  9. 14 haveahacks 6 December 2010 at 20:50

    > I don’t know how Leong Sze Hian does it. Does he sit in front of > a computer, staring at the Ministry of Manpower website, waiting > for updates?

    Uh, maybe because he writes his conclusions first and then selectively plucks numbers to fit his conclusions just like financial “advisers” conclude BUY ! first and then choose the base year accordingly to show whatever returns that they want to show.

    Of course it’s plainly obvious wages haven’t recovered to 2008 levels. We had a recession, remember ?

    Less facetiously, why so quick to accept Leong Sze Hian’s logic of dismissing the distinction between part-time and full-time ? Do you think that students working as banquet waiters on weekends deserve to be paid full-time wages ? According to the report there were 20,000 more part-time workers in 2010. Is that good or bad ? How many of those were sole breadwinners and how many were housewives or students earning some extra pocket money ?

    What Singapore really needs is some proper data on wages per hour, but that would really open up a can of worms…..

    • 15 Gard 7 December 2010 at 10:15

      I would presume that there would be a stronger distinction between students working on weekends versus someone working 35 hours a week; and a weaker distinction between someone working 42 hours a week and someone working 35 hours a week.

      More part-time work may be created to meet the needs of people with dependents. Even if sole breakwinners are taking on part-time work, it may be an optimal choice so that they can undertake domestic production (i.e. do household chores, take care of dependents, etc.) – which are not computed in GDP.

      There are the figures on under-employment, which can shed more light on students/housewives/breadwinner issue. I encourage readers to apply what Leong Sze Hian did to reading statistics than singularly following mainstream media. Draw your conclusions. Consider your hypotheses. Ask the questions.


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