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Topic 5: Socioeconomic issues – Income distribution and poverty

Introduction
According to Report of Household Income and Basic Amenities Survey 2016, it shows the
mean monthly household income for Malaysian increased to RM5, 228 in 2016 compared
to RM4, 585 in 2014 with a growth rate of 6.6 per cent per annum at nominal value. The
report also represent the overall incident of poverty have declined in all states especially
Sabah and urban and rural areas also depicted the same trend. However, the average income
earned do not give true picture of how equal the society is. Although it might be a sensitive
topic to discuss, income inequality is still an extremely important part of Malaysia current
economic situation. It is an absolutely necessary area of concern if the country wants to
keep growing. The fact is, income inequality exist for a reasons. For example, lawyers
make more money than grab drivers, because lawyers have made greater investment in
their education and they own a high degree in their sector. If both of them would be paid
the same amount of wages, people would be hesitant to become doctors, because the time
and money commitment are disproportionate to the rewards.

According to a 2014 Pew Global survey, 77% of Malaysians think that the gap between
the rich and poor is a big problem. The general perception is that the richer get richer, while
the poorer get poorer. The state-funded think tank pointed out that in 2016, households
with income below RM2, 000 per month spent 94.8% of their incomes on consumption
while families earning above RM15, 000 monthly spent only 45% of their income of
perception. The reason of this situation can be explained that the poor people would rather
spend their extra money instead of investing it. As a fact, the wealthy person are tend to be
more appreciate the value of saving, and using their money wisely. They have more money
and opportunities to save money and make investment to build more capital. For real life
example, the wealthy “pay themselves first” , each time they need to pay a check, they will
leave a pre-determined amount in a saving account that can eventually to be used for
emergency funds or investment. This act only requires a small amount of self-discipline
and simple math, they don’t spend more than the money you have left over in your account.
On the other side, the poor usually lack of financial knowledge and end up the living the
paycheck to paycheck lifestyle where they spend everything they have until the next flow
of cash come through. The problem with this approach is that these types of people only
live better lives in the present, but have a significant negative impact on their future. This
isn’t true for every poor person, but is one of the main factors that separates the wealthy
from the poor.

Advantage of income distribution and poverty

Income inequality exist for reasons, it ensure the fairness in income distribution, good and
services to all Malaysian. Furthermore, income inequality propose various benefits and
challenges to the growth of the economy. For the benefits, income inequality can promote
incentives effect, high wages is necessary to encourage workers to pay extra effort. By
rewarding high work, there will be a boost to productivity leading to a higher quality output,
so its benefits both workers and company. Without income inequality, people will
demotivate to work and become lazy. Next, income inequality also inspire people to take
risks and start a new business, it also encourage Youngers to create innovative ideas to
support their business in order to compete with big markets. Without the prospect of
substantial rewards, they would be no motivation to take risks and invest in new business
opportunities. In addition to this, when entrepreneurs are successful, they can also share
their wealth through creating employment opportunities for others. Lastly, income
inequality increase fairness, people deserve to keep high income if their skills are worth
for the organization. It’s also enhance people to acquiring new skills and looking forward
to get higher education in order to obtain high level of income. As an overall conclusion,
high level of income inequality promotes the economic growth of the country.
Disadvantages of income distribution and poverty

There are several disadvantages for income inequality. It’s common knowledge that people
with lower incomes often live shorter lives. Income inequality and social stratification can
lead high level of psychosocial stress and anxiety which can lead to depression, drug
dependency and more stress related diseases. Furthermore, income inequality among
Malaysian limits their access to health care facilities and healthy food supply. Next, crime
rates are also correlated with inequality in society. Poverty is the major cause of crime,
people have no choice but to commit crime to continue their living or maybe, their family.
There have a few categories of crime that shows a strong relationship with income
inequality including assault, theft, murder, rape, vehicle theft, robbery and burglary. The
next disadvantage is inequality cause high prices for consumers, if a firm owns monopoly
power, the bargaining power of suppliers is high resulting in increased prices for the
consumers. This leads to a redistribution of income from consumers to the shareholders of
monopolies. Lastly, as middle class jobs are more forward to hire high-educated employees,
this is still an important issues that link to income inequality. Inequality restricts people
from acquiring education for themselves or their children, they don’t have the chance to
earn more by getting a good offer of job. Ultimately, inequality plays a large role in
affecting skills attainment. Income inequality can decrease educational level of society,
and relatively increase the unemployment rate.

Conclusion
Although the income gap is getting smaller in Malaysia but it still consider high compared
to other countries. Malaysian should do some action in order to stimulate the reduction of
income gap. In addition, government plays a significant roles that influence the income
inequality, there are several methods for government to improve the poverty situation.
Government should emphasis on increase the educational level, inequality in wages may
reduce when Malaysian owns high level degree in education and skills. However, not
everyone has the opportunity to receive higher education. Therefore, the government
should strive to make higher education more accessible without abandoning quality
standards. Malaysian government may also increase taxes for top income groups. The tax
rate for the top income bracket in Malaysia is low at 25%, compared to other Asian
countries such as Korea (38%) and Thailand (35%) Increasing this rate of 25% to be more
line with other countries, would help reduce the income inequality in Malaysia. For citizen,
in order to increasing their income, they could also cut down on costs. All these efforts
should help to bridge the income gap in Malaysia and achieving for Vision 2020.

Reference
 Pros and Cons of Economic Inequality (29 September, 2018), Retrieved from:
https://www.prosancons.com/business/pros-and-cons-of-economic-inequality/

 Effects of economic inequality, retrieved from:

https://en.wikipedia.org/wiki/Effects_of_economic_inequality

 Jian soon (2 September 2015), Income Inequality and Crime in Malaysia, retrieved
from: https://prezi.com/smpbyncx0hhd/income-inequality-and-crime-in-malaysia/

 How are rich and poor different in their spending habits? (17 December 2017)
retrieved from: https://www.quora.com/How-are-rich-and-poor-different-in-their-
spending-habits

 Report of Household Income And Basic Amenities Survey 2016 (9 October 2017),
retrieved from:
https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=120&bul_
id=RUZ5REwveU1ra1hGL21JWVlPRmU2Zz09&menu_id=amVoWU54UTl0a2
1NWmdhMjFMMWcyZz09