This post is part of my horizon scanning research project.
The most common measure of income inequality or the income gap is the Gini Coefficient. When I first studied this ten years ago in university, I distinctly remember having the impression that Singapore had a very low Gini Coefficient.
Well according to the 2009 UN Development Programme report, Singapore had the second highest Gini Coefficient in the world after Hong Kong. Here's an article from Businessweek. In a nutshell, here are the top three winners:
No. 1 Hong KongI also found an interesting analysis of Singapore's recent Gini Coefficient performance at squareCircleZ. Here's the graph that it compiled based on Straits Times data, and the observation that "The rapid rise from 2002 and spike in 2007 were due to several factors, including rapid population increases (through immigration) of higher-income people, and a subsequent boost in the overall economy. The drop in 2008 and 2009 is due to the Global Financial Crisis, where many high-paying jobs either disappeared, or bonuses were slashed."
Gini score: 43.4
GDP 2007 (US$ billions): 207.2
Share of income or expenditure (%)
Poorest 10%: 2.0
Richest 10%: 34.9
Ratio of income or expenditure, share of top 10% to lowest 10%: 17.8
Renowned for its high concentration of Rolls-Royces, expensive real estate, and posh shops, the Chinese special administrative region has plenty of rich who enjoy showing off their wealth. However, Hong Kong also has one of the largest public housing sectors in the world, with about half the population living in government-supported or -subsidized housing estates. The city has no minimum wage—except for domestic helpers from the Philippines, Indonesia, and other countries.
No. 2 Singapore
Gini score: 42.5
GDP 2007 (US$ billions): 161.3
Share of income or expenditure (%)
Poorest 10%: 1.9
Richest 10%: 32.8
Ratio of income or expenditure, share of top 10% to lowest 10%: 17.7
Singapore is one of the world's most open economies, and it suffered badly following the bankruptcy of Lehman Brothers last year. Recently, though, the city-state's economy has rebounded, with GDP growing an annualized 14.9% rate in the third quarter compared with the previous quarter.
No. 3 U.S.
Gini score: 40.8
GDP 2007 (US$ billions): 13,751.4
Share of income or expenditure (%)
Poorest 10%: 1.9
Richest 10%: 29.9
Ratio of income or expenditure, share of top 10% to lowest 10%: 15.9
The share of income for the top percentile of Americans was 23.5% in 2007, the highest since 1928, according to Emmanuel Saez, a Berkeley economist who won the prestigious John Bates Clark Medal in April. Income for the top 0.01% hit a record-high 6.04%. And the recession may be exacerbating income inequality.
So what does it mean for us if the income gap is widening? According to my favourite academic resource Wikipedia, there are a few broad outcomes of income inequality. These include an erosion of social cohesion (less trust and less community involvement), poorer population health (with negative impact on life expectancy, economic growth and infant mortality) and lower economic growth (Gini Coefficient of below .25 or above .40 is bad for growth).In Singapore's case, the rise in income inequality is almost definitely due to the recent emphasis on attracting foreign talents, so an argument for the necessity of income inequality would go along the same lines: these people may seem overpaid, but they are the ones driving profits and creating employment that will eventually benefit the entire country. The lower income groups may seem relatively worse of, but in absolute terms they are still in a better position.
Mr Brown made a case against just such an argument in 2006, and it cost him his column in Today. Here's the account as reported by fellow blogger Alex Au aka Yawning Bread.
Lee Kin Mun, who writes under the pseudonym "Mr Brown", wrote a harsh, though humorous, commentary on June 30 concerning Singapore’s rising cost of living, mentioning that latest official statistics showed that one in every three Singaporean households had suffered a reduction in income over the last five years. The irony, which was not lost on the island state’s government, was that Lee cited official statistics to bolster his argument.Of course, Mr Brown wrote that article in 2006, in the aftermath of 9/11, the dot.com bust and a worldwide recession. Looking at the numbers again, the last five years seem to have been a lot better for the average Singaporean. Here is a table put together from SingStat's Key Household Income Trends, 2009 report and the Time Series on CPI & Inflation Rate. The real change in household income is definitely overall positive for these last few years, especially 2005-2008.
Of course, someone looking to buy a car might not appreciate how much his real income has increased, as shown in this chart from Singapore Real Estate. This is also a sharp reversal of the trend that saw Cat A COE prices fall from $30,000+ in 2003 down to $10,000+ in 2008. I don't have any good data showing the price of public transport, but it's pretty clear that that is going up too. Yet the CPI measure for transport has barely moved (from 98.3 to 100) from 2005 to 2009, it will be interesting to see when the figures for 2010 are released.
And as mentioned in the previous post, someone looking to buy a house (like me) isn't exactly spoilt for choice either. The CPI measure for housing has increased almost 25% (from 84.1 to 100) from 2005 to 2009.Lastly, here's another recent article on the cost of living in Singapore. HR Consultancy Mercer has ranked Singapore the 11th most expensive city in the world. It should be noted that this is for expatriate employees, who would not be eligible for government subsidised housing, hence clearly accomodation would be a huge chunk of their expense. Nevertheless, given our cheap food and cheap (relative to others) public transport, I'm quite surprised to see us so high on the list. Is this another wake up call?
Up till now, I've just been getting a grasp on the current situation. It is definitely worse than I thought before I started doing this research, but I'm not quite ready to draw an conclusions yet until I read a little more on income inequality. One thing is clear, as my friend pointed out, is that this could have an impact on the next election. In democracies, the lower income groups may have disproportionately small spending power, but they have equal voting power, especially when the lower income group is disproportionately large.
And finally, another interesting way to visualise the income distribution is as a parade of dwarfs and giants, as depicted by Dutch economist Jan Pen in 1971. This is the concept:
Suppose that every person in the economy walks by, as if in a parade. Imagine that the parade takes exactly an hour to pass, and that the marchers are arranged in order of income, with the lowest incomes at the front and the highest at the back. Also imagine that the heights of the people in the parade are proportional to what they make: those earning the average income will be of average height, those earning twice the average income will be twice the average height, and so on. We spectators, let us imagine, are also of average height.A friend sent me the Singapore version of the parade some years back, and it is quite an interesting read. Unfortunately I cannot find it online to link to or attribute, so at the risk of making this the longest and most un-original blog post ever, I am going to reproduce it in full. I am quite curious how the parade would look today, after the foreign talent policy.
Pen then described what the observers would see. Not a series of people of steadily increasing height—that’s far too bland a picture. The observers would see something much stranger. They would see, mostly, a parade of dwarves, and then some unbelievable giants at the very end.
In literally the first few seconds after commencement, we observe a number of people of negative height passing. On closer inspection they look like businessmen who have suffered losses. In fact, they are not necessarily short people – some of them are awfully tall, with their feet on the ground but their heads deep in the earth; they are in a severe liquidity constrained position. The market is never sentimental – many are attracted to the successes of private enterprise, which, however pass them by. Indeed, an EPD study found that only less than half of new firms set-up survive the sixth year.
After this tragic-comic opening, tiny gnomes rush by, the size of a matchstick then a cigarette. This contingent could include: housewives who do some part-time work, school kids working at McDonalds, etc.
The heights of the next group of participants though still very small – about 3 feet – increase by leaps and bounds. They are quite a mixed bunch: they may include a few owners of small shops, but mostly people not in formal paid employment – retirees, people with physical handicaps.
The ordinary workers, about whom there is nothing out of the ordinary except that they are in the lowest jobs. The contingent of cleaners & labourers is clearly visible. The unskilled clerks and other admin workers march in front of the unskilled manual workers. We have ample opportunity to observe them at our leisure. It takes almost fifteen minutes before the passing marchers reach a height of substantially more than four feet. For the spectators it can be a rather disturbing sight: fifteen minutes is a long time to keep watching small people pass by who barely reach to our midriff. More than a third are women. In embarrassment we avert our gaze and look towards the direction of the next contingent in hope of catching sight at long last of normal height persons.
But a surprise awaits us – we keep on seeing dwarfs. They are gradually becoming a little taller, but it's a slow process. They include the masses of workers, just ordinary people from the heartlands sometimes with not inconsiderable technical knowledge - a testimony to our excellent ITE training programmes. After ten minutes, the small people approach our collar bones. We see the skilled manufacturing workers, those from our polytechnics. There are also office workers, all respectable persons.
We are now half-hour into the parade; we know that the entire event will last an hour and hope to be able to look at the marchers straight in the eye, this is not so. We still look down on the top of their heads, and even in the distance we do not pick up an obvious improvement.
It is after 45 minutes or about 12 minutes before the end that the average income recipients pass by. We are interested in who these people are and crane our necks to get a better look: SBS bus drivers, lower grade teachers and civil servants, some IT people, older NCOs in the SAF, shopkeepers, sales representatives, insurance agents, foremen.
After the average income recipients have passed, the scene changes rather quickly. The marchers' height grows; seven minutes later we see the arrival of the top 10%. The head of this group to our surprise are still people with fairly modest jobs: school principals, analysts at brokerage firms, small contractors (PCK Ltd?), mid-ranking army officers (perhaps up to the rank of Colonel), SilkAir pilots. These are people who never thought they belonged to the top ten percent. Again office staff, department/division heads, but not the genuine top executives.
In the last few minutes, giants suddenly loom. A lawyer, not exceptionally successful, 18 feet tall. A Brigadier-General of similar height. Some (private sector) doctors come into sight, engineers at the large pharmaceutical companies.
There is still one minute to go, and now we see towering fellows. A Permanent Secretary about thirteen yards tall, a High Court judge, CEOs of some GLCs, eye surgeons, corporate lawyers.
During the last seconds, the scene is dominated by colossal figures. Most of them prove to be successful businessmen, managing directors of large firms sitting on many boards, top TCS stars.
The rear of the parade is brought up by a few participants who are measured in miles; their heads disappear into the clouds – Khoo Teck Puat, Kwek Leng Beng, Wee Cho Yaw and perhaps Olivia Lum.
Suddenly the parade is gone – the income recipients disappear from sight.
It appears that we have organised a parade of dwarfs. Indeed, a striking fact is that we had to wait so long for the average income recipient. This of course reflects the rich people bringing up the rear. Not only do they attract the attention of the spectator so much, but they also raise the average; it shifts to well above the great mass of income recipients. For that reason by far the greater part of the parade consists of small men and women, and not to mention the dwarfs. If we were to exclude from the parade those who bring up the rear, say during the last minute, the average height would drop considerably. Those remaining in the parade would not become taller mind you, but the impression would be removed that we have organised a parade of dwarfs.
Each of us has a particular spot in the marching contingents at every parade. Each of us is a participant and witness of a dramatic spectacle.
