The gap narrows

But will this improvementfade as the recession deepens?

Wednesday • January 21, 2009 (TODAY)
Lin Yanqin
yanqin@mediacorp.com.sg

IT HAS been topmost of policy-makers’ list of worries in recent years, so it is ironic — and unexpected — that signs are showing of a long-awaited turnaround in the widening income gap, just as the most difficult downturn in decades is gripping Singapore.

For the first time in 10 years, the disparity between the :top and bottom income earners narrowed, as incomes of the lowest earners grew faster than those of the top earners last year.

But will this reversal prove a blip, in the face of a deepening recession this year? Analysts’ views are mixed — with some saying the anticipated Budget bonanza would help lower-income Singaporean level up, while others fear retrenchments among this group could undo progress made.

According to the Department of Statistics (DOS), which released its annual Key Household Income Trends 2008 report yesterday, the Gini coefficient — a measure of income inequality — shrank from 0.489 to 0.481 as a result of a strong labour market, which saw more working persons in an average household.

Incomes of smaller flat-type employed households grew faster, with those in one- and two-room HDB flats enjoying a 12.5-per-cent income spurt; the increase was just 0.6 per cent for those in private housing.

The median household income from work also rose by 13 to 15 per cent for resident households in three-room or smaller flats — compared to 9 to 12 per cent for those in bigger housing types. Across the board, the median income among resident households was $4,950.

While the Gini coefficient has contracted twice before, in 2002 and 2006, those times were the result of Government handouts and rebates boosting the lower-income groups.

But in 2008’s case, the Government’s Surplus Sharing package was icing on the cake of actually shrinking income disparity. The package – which included Growth Dividends, Workfare Income Supplement and utilities rebates – further narrowed the gap to 0.462.

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SUBHD: Govt’s support vital to narrow the gap

On the side of optimism, CIMB-GK Research head Song Seng Wun thinks it possible for the income gap to further narrow as it tends to do during recessions.

“In a downturn, there are usually Government measures to help the bottom half and support their income, so this trend could continue,” he said. :Conversely, he adds, times of growth usually see the disparity widening.

However, if retrenchments hit jobs held by the lower-income – such as in the manufacturing sector – then the gap could widen again, said Forecast Singapore analyst Joanna Tan.

:Unionist Rajendran Govindarajoo, for one, is not hopeful. He notes that while rank-and-file workers last year benefitted from a strong labour market, it is unlikely to be the case this year. “The downturn will be bad, with employers cutting costs, so I don’t think we will see incomes rise,” he said.

Last year, the bottom 20 per cent of employed households saw incomes rise by 2 to 3 per cent, while the top 10 per cent had just 0.9 per cent growth. But the income gap could have been wider had income earned from non-work sources – such as dividends and rent – been included in the survey, noted Standard Chartered economist Alvin Liew.

The DOS notes that compared to lower-income households, upper-income households had more members already working, hence their household income would grow more slowly.

Without continued Government measures to support the incomes of the lower-income group, Mr Song feels the narrowing of the gap cannot be sustained over time.

Mr Liew agrees. Last year’s figures aren’t likely to signal a turning of the tide, since widening income disparity is “an economic trend we’re seeing globally”, he said. “The Government will have to continue to manage this situation and keep the social fabric cohesive.”

:Last year, its surplus-sharing package added $1,670 to each member’s income in one to two-room HDB resident households, which worked out to 26.5 per cent of each household’s income.