Inequality and intergenerational mobility

in Malaysia
January 2020
More inequality, less mobility
The Great Gatsby Curve

Khazanah Research Institute ©

2
Source: Corak (2013)
Globally, inequality has risen since 1980
Total income growth by percentile across all regions, 1980 - 2016

Khazanah Research Institute ©

3
Source: Alvaredo, Chancel, Piketty, Saez and Zucman (2017)
 Declining absolute mobility

Khazanah Research Institute ©

 What about Malaysia?

Khazanah Research Institute ©

 Progress over the years

Households’ and economic growth, 1960 – 2016

Real annual median
Real GDP (RM million) household income (RM, in
Real Median Annual Household Income Real GDP
2010 prices)
1,200,000 60,000
Commodity-based economy and the start Export-oriented Diversification and
of Malaysia’s industrialisation journey: manufacturing economy: deindustrialization:
• Average growth rate*: 7.1% • Average growth rate*: • Average growth rate*: 5.6%
1,000,000 • Average inflation rate†: 3.6% 8.3% • Average inflation rate†: 2.4% 50,000
• Average unemployment rate‡: 6.4% • Average inflation • Average unemployment rate:
rate†: 2.9% 3.3%
• Average
800,000 unemployment rate: 40,000
4.9%

600,000 30,000

400,000 20,000

200,000 10,000

Khazanah Research Institute ©

0 0
1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016
Source: World Bank World Development Indicators, KRI (2018) 6
Inequality has declined
Real household median income and level of inequality, 1970 – 2016

RM 6000 0.600

RM5,228
5000 0.500

4000 0.400

Gini coefficient
3000 0.300

2000 0.200

1000 RM819 0.100

Khazanah Research Institute ©

0 0.000
1970

1974

1976

1979

1984

1987

1989

1992

1995

1997

1999

2002

2004

2007

2009

2012

2014

2016
Median (LHS) Gini (RHS)

Source: KRI (2018) 7

Literature on social mobility in Malaysia is
limited
• Syed Husin Ali (1964): Upward socioeconomic mobility among residents of
Kampong Bagan, Batu Pahat was difficult to attain due to low income, lack of
savings, limited access to borrowings, lack of capital ownership and low formal
education.
• Wan Hashim Wan Teh (1980): Mobility for Malay fishermen in Pulau Pangkor
was limited due to lack of assets and employment opportunities.
• Nor Hayati Sa’at (2011): A survey of fishermen from Kuala Terengganu shows
that only 32% have improved their intragenerational socioeconomic standing,
55% remained stagnant and 32% deteriorated.
• Liliard & Kilburn (1995): Father’s income accounts for about 19% and 32% of
the variations in son and daughter’s income respectively. The study used
detailed retrospective data for fathers from 1976 Malaysia Family Life Survey.

Khazanah Research Institute ©

• UNDP Human Development Report Malaysia 2013 (2014): A nation-wide
statistical evidence based on household income surveys data shows significant
mobility differences between the NEP, and the Pre- and Post-NEP generations.

8
KRI studies on social
mobility:
Climbing the Ladder: Socio-economic Mobility in Malaysia
(Muhammed, Hawati, Jarud and Gregory Ho, 2016)

A Rising Tide Lifts All Boats? Intergenerational Social Mobility in Malaysia

(Hawati, Jarud and Jomo, 2019)

Khazanah Research Institute ©

9
Scope of the study

The sample: Analytical framework for economic mobility:

Khazanah Research Institute ©

1. Parent, born between 1945-1960, and 1. Intergenerational elasticity (IGE)
2. Their eldest child, born between 1975-1990 2. Relative mobility - transition matrices
3. Absolute mobility

10
 Key Findings

11

Khazanah Research Institute ©

Key findings

 1. Education Mobility

2. Occupational Skill Mobility

3. Income Mobility

Khazanah Research Institute ©

12
Almost two-thirds of the children are better
educated than their parents

Children’s educational mobility

Khazanah Research Institute ©

13
Parents’ vs children’s education level

Khazanah Research Institute ©

14
Key findings

1. Education Mobility

 2. Occupational Skill Mobility

3. Income Mobility

Khazanah Research Institute ©

15
85% of children have a higher or the same
occupational skill level compared to their
parents
Children’s occupational skill mobility

Khazanah Research Institute ©

16
Parents’ vs children’s occupational skills

Khazanah Research Institute ©

17
Key findings

1. Education Mobility

2. Occupational Skill Mobility

 3. Income Mobility

Khazanah Research Institute ©

18
 19% of children's income is associated
with parents' income
Intergenerational Earnings Elasticity (IGE)
𝑙𝑛𝑌𝑖,𝑡 = 𝛼 + 𝛽𝑙𝑛 𝑌𝑖,𝑡−1 + 𝜀𝑖,𝑡 *
0.5
0.47 0.48

0.41

0.32 0.32

0.27

0.18 0.19 0.19

0.16 0.17
0.15

Khazanah Research Institute ©

DNK AUT NOR FIN MYS CAN SWE ESP DEU FRA USA ITA GBR

* Following Becker and Tomes (1986), Atkinson (1981), Solon (1992), Zimmerman (1992), and Blanden and Machin (2007).
Source: OECD (2010) – estimates from various studies, KRI (2016)
The empirical comparison is motivated by the fact that they are based on research that are similar in the estimation technique, sample and variable
definition without taking into account differences in study period.
19
 Income mobility in relative terms
Percentage of children in each income quintile, by parent’s income quintile

74% 11% 12%

17% 20%
32%
Q5
of children born to Q4
parents in the bottom 20% 19%
Q3
quintile have moved 24%
up by at least one 25% Q2
quintile Q1
21% 25%
30%
Percentage of Children in

23%
Each Income Quintile

23%
22%
23%
19%
22% 14%
68%
of children born to
26% 10%

Khazanah Research Institute ©

21% 18% parents in the top
13% 10% quintile have moved
down by at least one
Q1 Q2 Q3 Q4 Q5 quintile
Parent’s Income Quintile

20
Rags-to-riches story?

Odds for a child born to parents in the bottom quintile reaching the top
quintile of the income distribution

USA Chetty, Hendren, Kline, Saex (2014) 7.5%

UK Blanden & Machin (2008) 9.0%

Denmark Boserup, Kopczuk and Kreiner (2013) 11.7%

Canada Corak and Heisz (1999) 13.5%

Khazanah Research Institute ©

Malaysia KRI (2016) 11.0%

21
 22

Khazanah Research Institute ©

 Income mobility in absolute terms
Percentage of children with higher income than their parents, by parent’s income group

5%

26%

49%
53%
Lower
income 69%
76%

96%
95%

74%

51%
47%
Higher
income 31%

Khazanah Research Institute ©

24%

4%
Overall <1k 1k - 1,999 2k - 2,999 3k - 3,999 4k - 4,999 >4,999

Parent’s Income Group

Notes: 24
Parent’s income is inflation-adjusted to the year 2015.
What determines upward
absolute mobility?
Percentage of children by income group and Percentage of children by income group and
education mobility status occupation skill mobility status

100
100
80 42.9 21.6
80 42.6
69.5
Percentage

60

Percentage
60
56.6
40
40
55.5 48.1
20
29.2 20
21.7
0 1.4 1.6 9.4
0
< 1k > 4,999 < 1k > 4,999

Khazanah Research Institute ©

Parent's income group, RM/month Parent's income group, RM/month
Downwardly mobile Equivalent Upwardly mobile Downwardly mobile The same Upwardly mobile

25
Key Findings
o Education mobility is high. 62% of the children are better educated
than their parents.
o 37% of the children are better skilled than their parents with
upward occupational skill mobility being more pronounced among
children with low-skilled parents.
o Only 19% of children’s income is associated with parents’ income.
This means a larger proportion of one’s income is associated with
other factors apart from parent’s income.
o 11% of children in the lowest quintile move up to the top quintile
and most children with parents earning less than RM1,000 receive
higher income than their parents.

Khazanah Research Institute ©

o A host of factors play a role in upward relative income mobility,
including education and gender.

26
Discussions
1. Sticky floors and ceilings: children from
disadvantaged families have larger chances of
remaining at the bottom while children in the highest
quintile are less likely to move down.

2. The importance of education in facilitating mobility.

Can the current education structure contribute as
well?

Khazanah Research Institute ©

3. Are policies in place to promote upward mobility for
disadvantaged groups?

27
Conclusion
1. Our study provides only a snapshot of social mobility
for a specific cohort.

2. With economic growth and changes in inequality, the

experiences of social mobility most likely differ
between generations.

3. Longitudinal panel data tracking households over

their life cycles can provide meaningful and telling
insights.

Khazanah Research Institute ©

28
Thank you
1. Climbing the Ladder : Socio-economic Mobility in Malaysia
2. A Rising Tide Lifts All Boats? Intergenerational Social Mobility in Malaysia

Visit our website at www.KRInstitute.org

Khazanah Research Institute ©

29