KUALA LUMPUR, Oct 13 — Over a million families are at risk of absolute poverty as evolving basic necessities squeeze their buying power while income growth has not kept pace since the turn of the century, according to Khazanah Research Institute’s new study

The study looked into the state of welfare in the country over 30 years by analysing income growth and inequality to measure the standard of living throughout the decades, with focus placed on poorer and lower-income households.

The state-backed think tank said while income has generally risen since the 90s, which correlates with the decline in absolute poverty, the rate of salary growth has failed to alleviate the lives of some 1.2 million lower-income households.

These are families that earn just above the absolute poverty line but are still far below a decent living standard. And this income group is particularly vulnerable to shocks since it is likely that a majority of them work precarious jobs that offer little security, especially in times of economic crisis.

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“These households are vulnerable to falling back into absolute poverty in case of catastrophic events, such as the current pandemic or job loss,” KRI said in a summary of its report.

While Malaysia’s absolute poverty rate was 5.6 per cent or about 405,000 households last year, indicating that most households are meeting basic needs, the study found little progress in reducing relative poverty.

Absolute poverty is defined by income needed to acquire basic needs while relative poverty compares a household’s economic standing against those earning enough to afford a decent living standard.

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KRI said up to 16.9 per cent or 1.2 million households are still in relative poverty.

That means 11.3 per cent or 835 thousand households had incomes not far above the absolute poverty line income, while remaining far below the average living standard.

And as basic needs continue to expand, these households face added pressure to keep up.

By analysing spending patterns, KRI said it found an increase in household income often correlates with higher spending, with a large bulk of it for items like communication-related goods and services or eating out.

This suggests items once deemed unnecessary are now crucial for a decent way of life.

“The increase in household income has been accompanied by higher spending. Alongside higher prices, more spending has gone to eating out and communication-related goods and services,” it said.

“While such spending has long been seen as discretionary, such items have increasingly become necessary, sometimes putting further pressure on cost of living.”

The country’s average real household income has more than tripled from RM2,580 in 1989 to RM7,901 in 2019, while median income rose from RM1,801 to RM5,873.

As a share of Gross Domestic Product (GDP), household income increased to 45.7 per cent in 2019 from 35.9 per cent in 1989. These income gains enabled greater household spending and welfare.

From 1990 to 2019, the absolute poverty rate fell from 16.5 per cent in 1989 to 5.6 per cent in 2019 despite the recent upward revision of the poverty line, while the long-term trend in income

inequality, as measured by the Gini coefficient, also moderated from 0.442 in 1989 to 0.407 in

2019, the study found.

The study also found income growth among the Bumiputera to be the fastest among all ethnic groups, leading to smaller ethnic gaps. Furthermore, economic growth increased average and median incomes in all states and territories during the three decades.

But these numbers give a less accurate picture. While median salary did increase, the pace fell by half from 1999 to 2007 and growth recovered just slightly from 2009 to 2019 but still below the level seen between 1990 and 1998, when income grew the fastest.

And as of last year, income share of the bottom 20 per cent of households (B20) was just 5.6 per cent while income concentration at the top was high, with the top 10 per cent of households (T10) commanding 30.7 per cent of total income, even as the Gini coefficient moderated.

KRI said the findings point to the urgent need to work for a more equitable society with less

concentration of income at the top and a fairer share of income for those at the bottom.

“Economic empowerment initiatives must be scaled up to assist these households in generating higher incomes,” the think tank said.

“In addition, welfare spending needs to be increased and the social protection system be broadened to include more vulnerable households.”