Wednesday, November 29, 2006

Ethnic Group Income Disparity Ratio

It has always been put forward that a "huge gap" in the income disparity ratio between ethnic groups is one of the key rationales for extending the New Economic Policy in favour of Bumiputeras. I've written on the fallacy of such a policy in its ability to assist poor Bumiputeras. However, I thought we should re-look again at the official statistics provided by the Government to determine if it provides the true picture.

In the 9th Malaysia Plan, it was put forward that "the income disparity ratio between Bumiputera and Chinese narrowed from 1:1.74 in 1999 to 1:1.64 in 2004, while the ratio between Bumiputera and Indians also reduced from 1:1.36 to 1:1.27."

Professor K S Jomo, in his paper written in September 2004, "The New Economic Policy (NEP) and Interethnic Relations in Malaysia" for United Nations Research Institute for Social Development (UNRISD), put forward that
...with the average Malay fertility rate about double the Chinese rate at the end of the 1980s, and with the Indian rate slightly higher than the Chinese, it is also quite possible that per capita Malay income levels will continue to remain low, and poverty correspondingly high, simply due to larger household sizes.
Well this basically means, hopefully in simpler terms, is that there are proportionately more young Malays than other ethnic groups who have yet to join the workforce. And because their numbers form part of the total population which brings down the average income level, they may have distorted the actual income disparity between the various ethnic groups.

In other words, since there are proportionately more non-income generating young Malays, it is likely that the average income level of bumiputeras is lowered more than it should be, relative to that of the other ethnic groups.

What I did next was a little number crunching based on population numbers extracted from the 7th, 8th and 9th Malaysia Plan. (Those interested in actual numbers, can email me).
  • Firstly, I assumed that all Malaysians under the age of 15 have not joined the workforce, and hence do not earn any income.

  • Secondly, I obtained the total income generated by the respective ethnic groups.

  • Thirdly, instead of dividing the income generated by bumiputeras by the total bumiputera population, I divided the income by the population less the those aged 15 and below. I apply the similar formula to the other ethnic groups.
As a result, by removing the population under the age of 15 in the calculation of per capita income of the various ethnic groups, the income disparity ratio between Bumiputeras with Chinese and Indians, is reduced significantly to 1.34 and 1.11 respectively. If we were to increase the age group which is removed from calculation to 20, the income disparity ratio will drop even further.

Click table to enlarge.

It is hence clear that while income disparity continues to exist even after adjusting the methodology for income disparity ratio calculations, the disparity between the ethnic groups is no longer glaring. Compare this to the other indicators such as urban-rural income disparity ratio which worsened from 1.81 in 1999 to 2.11 in 2004 as well as the consistently deteriorating intra-ethnic income disparity ratio (blogged here).

Hence the argument that the income disparity ratio between the various ethnic communities being substantially big and serious is no longer as relevant. And the income disparity ratio today is a far cry from the days of independence whereby it was 2.16 and 1.71 between the Bumiputeras with the Chinese and Indians respectively.

The crux of the NEP is hence misguided in its core focus on inter-ethnic income disparity, when the Government should instead be placing greater emphasis in halting the much more urgent and serious deterioration of rural-urban as well as intra-ethnic income disparity.


Anonymous said...

Altho numbers don't lie, whatever it is they always say the rich gets richer and the poor gets poorer. Ask any ordinary housewife ( not the datins tho ) .. they can tell that the prices of stuff have gone up..Just last sat, as an eg. prices of vege. and eggs have gone up. We have not even have our annual review to haggle with the management for salary increment and bonus and the market fellas are one step ahead and have already up the prices of eggs by 10% and of course they blame the rainy season for the increase in veg. price. ( as if our pay increment will be at least 10% ? )

Anonymous said...

Tony Pua, you.. the man! excellent analysis! Keep it up!

Anonymous said...

Owing to slower populatiom growth, the average age of non-bumi worker will, over time, get higher as compared with the bumi. With that, the income disparity will be greater. Everythng being equal, you can't expect an older worker to get less than a younger worker, would you?

Anonymous said...

Thanks Tony for your numbers is indeed an eye-opener for everyone.

But like you suggested, rural-urban poverty is another pressing issue. I think because of higher inflation rate in the towns and because of the ever rising 'rapid urbanisation and rural-urban migration" in the country, urban poverty is now equally critical.

The government should spend equal if not more efforts to address urban poverty issues as traditionally, poverty eradication policies in the country has always focused on the rural sector.

Good post, Tony.


jerng said...

nice one. i'm particularly interested in examining any correlation between language capability and earning power.

Anonymous said...

So what are we going to do about this except sitting in front of our computers complaining and whining about how unjust and bigoted our government is?

Why don't non-Bumiputera for once start to venture into area unknown before ? Why don't the Chinese and Indians set up NGOs that specifically target the poor rural bumiputera? Help these poor souls and convince them it is not UMNO who will save them but kind and considerate people who might not necessary be of the same religion and race ?

If we are to break this stereotype of rural Malay populace about greedy scheming Chinese business, we have to do something pro-active to tackle this issue.

I don't think many rural and poor Malay will be reading Tony's blog and understand the issue potray quite differently from his/her own world. It will definitely be an eye opening experience or even shocking for any of them to see how 40% of their countrymen do not see and share their world as potrayed by Utusan Melayu or Berita Harian.

Break this stereotype by going to the kampung and find out ways to help them. The first entity to be shocked by this tactic will defnitely be UMNO as their core competency is to play up racial rhetoric. Once the grassroots Malay recognize the rhetoric as just that - rhetoric - then Malaysia can move ahead with a new era of politics.

Lee Kuan Yew commented about this once in his memoirs - Singapore Story. He appealed to the Malay voters and UMNO were damned piss because a slit-eyed person is breaking into UMNO's holy ground and feared losing these Malay mass to him. Mind you, LKY is a native speaker in Malay. One of the unspoken reason Singapore is cast out is for the fear that perhaps LKY might succeed in forming a non-sectarian Malaysia.

Come on guys! Lets throw in some ideas. As long as we (Malaysian populace) are depedent on print media, they will never be free debate and contest of opinion. Perhaps a computer and internet facilities for every rural village? Or perhaps better tutoring of the English language so as to better communicate with their fellow countrymen? It might take 20-30 years but if that can be done, UMNO's fate is sealed.

Anonymous said...

Good reasoning to compare against salary disparity. Once they've achieve that they will compare against urban-rural disparity, restaurant disparity (maybe they will franchise to Indian mamak but collect tax from them)... the list continue, ya... and finally how long is your john.

Tony P said...

Oiy Jerng,

I not the Centre for Public Policy Studies or the Economic Planning Unit-lah!


Anonymous said...

Frankly, don't even care what statistic the government gives anymore. I only assume they are lies..

dranony said...

Much political capital has been made by UMNO politicians on the Income Disparity Ratios between Chinese and Malays, to impress that because there is a significant disparity between Chinese and Malays, that there is justification for continuation of racial policies ie NEP, to continue giving privileges to Malays.

In the 12th August 2007 online version of,
See link here:
"Jangan rasa bersalah bela agama, bangsa"

Mohd Khir Toyo was quoted as saying,

"‘‘Bagi setiap ringgit yang orang Melayu dapat, orang Cina dapat RM1.64 dan orang India RM1.30. Jurang pendapatan penduduk bandar dan luar bandar lagi lebar, hari ini saya difahamkan setiap ringgit orang luar bandar dapat, RM2.90 orang bandar dapat,’’ katanya."

Simply using the figures provided by Mohd Khir Toyo, as in the news article above,
IDR of Malay:Chinese:Indian = 1: 1.64: 1.30
IDR Urban: Rural = 2.90 : 1
(I assume that the Urban Rural IDR is for ALL races in urban areas vs ALL in rural areas.)

From the second IDR statement, it is evident that
for every RM1.00 that a rural person makes, an urban person makes RM2.90.

I'm not sure why Khor Toyo wanted to highlight that figure of 2.90, but perhaps it was to highlight that the Chinese, being predominantly urban, made much more money than the poor rural folk. Perhaps it was also propaganda to impress upon the audience (UMNO Bahagian Batu Gajah) that there were NO rural Chinese, and therefore no poor Chinese?

However, imho, he may NOT have realised by highlighting this 2.90 figure, it serves to point out that the real disparity is NOT between Chinese and Malay, BUT instead between Urban Malay and Rural Malay!

Let's take the following figures as basis for calculation:

The html file can be saved as html and opened in MS Excel.
The actual numbers for population of ethnic groups and rural-urban groups can be calculated easily in an Excel,
deriving from the total state populations and percentages given.

Total Msia population: 23 million

Total Malay population: 15.25million
Total Chinese population: 6.01million
Total Indian population: 1.75million

The total rural population is about 8.87million,
and total urban population is about 14.47million.

From Khir Toyo's impression, almost all the rural folk are Malays,
ie of the 15.25million Malays, 8.85million are Rural Malays, 6.40 million are Urban Malays.
(Means that there are as many Urban Malays as there are Chinese, who are almost all urban.)
(Assume also for calculation that ALL Indians are urban.)

From the above, for every RM1.00 which the Rural person makes, the Urban chap makes RM2.90.
That means that the total made in that year by ALL "Rural+Urban" persons would be
=(RM1 X 8.84million) + (RM2.90 X 14.47million)
= RM 50.82million

Using the same calculation, the total amount made by all races:
Total Malay + Total chinese + Total Indian
=(RM1 X 15.25million) + (RM1.64 X 6.01million) + (RM1.30 X1.75million)

SO THAT WE CAN COMPARE the inter ethnic IDR together with the rural-urban IDR,
we should change the base for the total amounts made by all the races, to be the same as that for rural-urban IDR
(this would NOT change the ratios):
Therefore, instead of RM1, the relative amounts made by each ethnic group is:
Malay RM1.87 (RM1.00 X 50.82/27.38)
Chinese RM3.07 (RM1.64 X 50.82/27.38)
Indian RM2.43 (RM1.30 X 50.82/27.38)

Put another way, the TOTAL amounts made by the different ethnic groups:
Total Malay = RM1.87 X 15.25million = RM28.30million
Total Chinese= RM3.07 X 6.01million = RM18.29million
Total Indian = RM2.43 X 1.75million = RM4.23million
(Total= RM50.82million)

HOWEVER, WE MUST REMEMBER THAT, IN THIS CALCULATION, the initial base amount for the "Rural-vs-Urban" calculation STILL STANDS, since we have already adjusted for it!
ie, if the total amount made is RM50.82million, the total amount made by the 8.84million Rural Malays is STILL RM8.84million.
{Rural Malays is just a subset of Total Malays}

Taking the total made by ALL Malays, ie RM28.30million, and subtracting RM8.84 million which the Rural Malays make,
would be how much the Urban Malays make.
THIS IS A WHOPPING RM19.46 million!
Which is more than what the urban Chinese make!

IN FACT, IF WE WERE TO DIVIDE THE RM19.46 million by the 6.40 million Urban Malay (Total Malay 15.25mil - Rural Malay 8.84mil = 6.40million Urban Malays),
they would be getting RM3.04!

That means that for every RM1 that a rural Bumiputera makes,
an Urban Bumiputera makes RM3.04!


It is the difference between Urban and Rural which accounts for much of the disparity.

Of course, even amongst the Urban Bumiputera, I'm sure that there is a wide disparity - one single Datuk with an Istana of his own, will skew the income for maybe a hundred of his neighbours!

Let's hope that the rakyat finally will see who is the bogeyman eating up his share of the economic pie.

Let us compare Urban Chinese with Urban Bumiputera, and not (urban) Chinese with ALL Bumiputera.
That would be an unfair comparison, as with any non-communist country, esp one which is rapidly developing, there is bound to be significant urban-rural income disparity.

To try to achieve Chinese-Bumiputera income equality would be an impossibility, unless ALL of the Bumiputeras become Urban!

You will note that, in the calculation above, an important assumption is made, on the basis that
"ALL Chinese are urban,
and ALL Rural are Malay."
Obviously, this cannot be strictly true.
HOWEVER, it is my humble opinion that, even if the real figures are used (can anyone from the Statistics Dept provide them?), the greater disparity will still be more evident between Urban-Rural rather than between Chinese-Malay.

Therefore, using a Chinese-Malay disparity is spurious, even dishonest, because if we were to use Urban Malay-Rural Malay comparison, it will also show up a marked disparity.
Therefore, to continue to point to a Chinese-Malay disparity to justify Racial Policies, is plain dishonest.

There may still, however be a slight disparity between Urban Chinese and Urban Malay, but this should not be substantial enough to justify any major policies changes to correct it.