Our Gini Coefficient is at its lowest in a decade. Should we be happy?

TL;DR – Only part of the story.

The Gini coefficient is the most commonly used measure of inequality. It is a way of comparing how distribution of income in a society compares with a similar society in which everyone earned exactly the same amount. The Gini coefficient is between 0, where everyone earns the same, and 1, where one person earns all the money. In simpler terms, there is more income equality when the Gini coefficient is closer to 0 and less income equality when the coefficient is closer to 1.

So now, what is Singapore’s Gini co-efficient?

According to recent statistics released by Singapore’s Department of Statistics (DOS), the Singapore’s Gini coefficient fell to 0.458 in 2016 from 0.463 in 2015.

After taking into account the redistributive effect of government transfers, the Gini coefficient fell to 0.402 in 2016 from 0.409 in 2015.

How have we fared through the years?

According to Ministry of Finance’s Occasional Paper on Income Growth, Inequality and Mobility Trends in Singapore, our Gini coefficient has gone through three main phases since 1980. Here are some key points from the paper:

  • Past data shows that our Gini coefficient has fluctuated above 0.40 since 1980.
  • It has also declined somewhat in recent years, from a peak in 2007.
  • First, the Gini declined in the 1980s from around 0.44 in 1980 to about 0.41 in 1990.
  • The Gini increased in the 1990s and early 2000s to a peak of about 0.48 in 2007.
  • Since 2007, the Gini has declined.

So should we be happy with our lowest score in 10 years?

Our 2016 Gini coefficient of 0.458, which translates to a 1% decrease, brings Singapore to its lowest level in a decade. It means that income inequality is at its lowest levels. Finally, our income inequality is coming down! That’s a great thing, isn’t it?

No. It isn’t.

The numbers above only tell part of the story. The full story is that income inequality seemed to have dropped because the incomes of the top  10% of households have only grown at 0.2% in 2016. This is a drastic drop from 7.2% in income growth of the same group in 2015. In contrast, the bottom 10% of households saw a growth of 1.4% in 2016, compared to a growth of 10.7% in 2015.

And that is the more worrying fact that has come out of the statistics released. Income growth has slowed across the board. Median household income from work among resident employed households in Singapore rose to S$8,846 in 2016 from S$8,666 in 2015. That is an increase of 2.6% in real terms in 2016. This is a drop from  the 4.9% increase in real median household income from work in 2015.

Here’s an infographic on Key Income Trends in 2016 from Straits Times.

Equality or quality?

It’s not that we can have only one. But beyond having income equality, it’s more important that people are able to lead quality lives. What’s the point of income equality if everyone is equally poor? Is that something we want? That’s why we shouldn’t be that happy income equality is the lowest in 10 years. Because it is likely a symptom that the economy has slowed over the last year and, as a result, aren’t able to grow their incomes at similar pace as before.

This is perhaps the new normal.

The Committee of Future Economy (CFE) has released its report that details seven strategies for Singapore to achieve quality, productivity-led growth of 2% to 3% a year over the next decade. That is a considerably slower pace compared to growth rates of between 3% to 15% over the last decade (except for 2008 and 2009 where growth was 1.8% and -0.6% because of the global financial crisis).

CFE committee on the future economy report executive summary

So. Gone are the days that our economy grows at blistering rates. Along with that, we may have to accept that our incomes will not be growing as fast. But that need not be the case. The growth that CFE is aiming for is to be led by productivity growth. This is in contrast to the growth of the past where growth in labour force contributed significantly to economic growth.

Change in skills and mindsets needed

This means the fruits of any growth in the economy will be spread amongst fewer people than in the past. So if we can really pull off productivity-led economic growth of 2% to 3%, then we should be able to maintain quality income growth. But to do that we must have the skills and mindsets to be more productive. We need to be able to leverage on technology. That will require us to develop ourselves and change the way we approach work.

With such changes in skills and mindsets, we would have a better chance of developing a stronger, more resilient economy and society where everyone is included in our nation’s growth. While many have said the CFE recommendations underwhelming, I think the point is not to come up with newer, bigger, brighter ideas, but workable ones.

The role of the Government

I think practically every world in the world strives to sustain income growth and mobility, whilst trying to contain inequality. Tough, and few countries have succeeded on all three fronts.

It can be especially challenging for a city-state like Singapore. It is a matter of survival for us to move ourselves up the value chain since we cannot compete with the ‘cheaper’ countries in terms of manufacturing and the like, but how do we move the nation to up-skill, re-skill and deep-skill? What about those who cannot catch up with the digitalisation and uberisation of things?

But even if we are able to pull off productivity-led economic growth of 2% to 4%, will every segment of society be able to enjoy quality income growth? Unlikely. No matter what assistance the government may provide, there will be some parts of society who will not be able to keep up. For that group of people, there is a case for the government to increase social expenditures for and social transfers to the lower income group.

Will we see more of that? Hopefully.

Now excuse me while I go check on what’s in this year’s Budget Statement.

Author: Jake Koh

Recovering sushi addict, I'm a man of mystery and power, whose power is exceeded only by his mystery.

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