Eight months ago, Luke Chia, who was earning $8,000 per month at that time, got laid off. However, he soon found a job as a security guard. The 37-year-old thought of it as a temporary source of income. He also relished the chance to interact with people at the CBD office building where he is posted.
But it has not been a pleasant experience so far. Chia says he has been called an “idiot” and “uneducated”, just for trying to get people to comply with the safe management rules.
“In my former job, people called me ‘Sir’, opened the door when I walked into a room and treated me with respect. Now, some people don’t even acknowledge when I greet them,” he tells The Edge Singapore.
As a security guard, Chia says he sees the challenges facing individuals who draw an average income of $1,200 per month. Apart from the struggles of supporting families on this meagre income, security guards are also often treated “as if they are invisible,” he says.
Some would argue that such a class divide is a form of inequality — a perennial issue that countries around the world continue to grapple with. Others consider this an issue of inclusivity, or the lack of it.
In a recent lecture series with the Institute of Policy Studies (IPS), Monetary Authority of Singapore (MAS) managing director Ravi Menon highlighted that inequality and inclusion are distinct, even as they are related.
“I believe what most of us want instinctively is an inclusive society — one that provides broadly equal opportunities for one to move up in life; one that leaves no one behind and treats all with dignity and respect,” he says.
This paints the picture of an economy where the “markets work for everyone,” adds Menon, whose comments come as the Covid-19 pandemic has seemingly intensified the divide between individuals in the so-called upper rungs of society, compared to those in the lower tier.
A study conducted by global market research agency Glocalities at the start and end of last year showed that more respondents thought that income differences between the rich and poor should be reduced. The findings are based on the responses of over 8,700 people in 24 countries, including Singapore, Australia, Brazil, India, China and the US.
In Singapore, a study of 1,231 beneficiaries of non-profit organisation Beyond Social Services published on Feb 9 points out that low-income households faced greater financial devastation than any others during the pandemic.
For instance, the median household income from work had dropped by 69% to $500 for households receiving the Covid-19 Family Assistance Fund from the non-profit. They were drawing a medium income of around $1,600 before the pandemic.
Meanwhile, around 35% of the fund applicants had no incomes post-Covid-19, presumably because of layoffs. Dr Stephanie Chok, the assistant director of research and programme development at Beyond Social Services who led the study, emphasises that while the pandemic has been especially brutal for low-income families facing economic hardship, it has created “multiple forms of insecurity as everyday life was disrupted in unforeseen ways”. For example, something as basic as having Internet access at home which is essential for adults to work and students to study.
As heart-wrenching as they may be, this “us versus them narrative breeds class envy and diverts us from a genuine social problem,” warns Professor Danny Quah, dean of the Lee Kuan Yew School of Public Policy (LKYSPP).
Gini coefficient, the best measure of inequality?
Singapore’s latest population census report indicates a 3.3% per annum rise in the average and median household incomes to $7,744 last year, from $5,600 a decade ago. The growth is skewed towards the higher end, with the proportion of households earning at least $20,000 monthly more than doubling from 6.6% in 2010 to 13.9% last year.
At 0.46, Singapore’s Gini coefficient does appear higher than that of most countries. For comparison, the Gini coefficient for Nordic countries stands at 0.27, and at 0.34 for the UK. Meanwhile, the metric stands at 0.39 for China and 0.41 for the US. A score of zero indicates perfect equality, while a score of one shows perfect inequality.
While warning that countries “cannot afford to have such high inequality”, Menon attributes Singapore's reading to it being a city. However, he cautions that that the Gini coefficient is not without its flaws. For one, it is highly sensitive to changes at both extreme ends. A measurement for a group of 10, for example, will be skewed once the likes of, say, Portuguese footballer Cristiano Ronaldo — reportedly set to earn EUR31 million ($49.5 million) this year — joins in, he explains.
Menon believes that a more meaningful way of assessing income inequality is through inter-decile income ratios which eliminates outliers and captures the ratio of persons with income in the 80th and 90th percentile to those between the zero to 10th percentile.
The Department of Statistics (Singstat) says that in the early 2000s, the average monthly income from work for individuals in the 90th percentile was 18 times that of households in the 10th percentile.
This number went up to 26 times between 2008 to 2012, before easing moderately to 24 times in recent years. Meanwhile, the average monthly income from work for individuals in the 80th percentile vis-à-vis that of persons in the zero percentile has stayed stable at around 11 times in recent years.
These numbers paint a more accurate picture than that of the Gini coefficient which has surged from around 20 times in 2000 to 25 times last year. “Income inequality has obviously worsened. The share increase in the income at the very top makes the measured inequality according to the Gini worse than is the case for the majority of the population,” says Menon.
According to LKYSPP’s Quah, the underlying problem is that the poorer people would have been hit by the fallout from the pandemic, with or without the inequality. While it is possible to alleviate the plight of the poor by redistributing resources from the rich, Quah says that simply imposing equality — however that might be achieved — will not deliver a cohesive society.
This view resonates with Menon, who notes that a perfectly equal society is neither feasible nor desirable. Economists describe an egalitarian society as one where tensions are rife and people fret over not having enough for their basic survival, since limited resources need to be shared equally. Conversely, excessive income disparity can “give rise to political feelings of discontent among the poor, sharpened by the knowledge that others have more than them,” says Quah. In this time, the rich may possibly suppress change, thereby further dividing society. The issue is a double-edged sword where no party can be completely satisfied.
Wealth, not income gap
Quah estimates that while inequality increased by 85% between 2000 to 2019, the average income of the population by 55%. With this, Singapore saw an upward mobility of 2.3% a year over the last 20 years. What this means is that despite an increase in the disparity, “Singapore’s weak and vulnerable steadily gained ever greater control over real resources,” he explains.
Increasingly, as seen in various low-wage sectors ranging from security guards to landscape workers, policymakers are pushing for a “progressive wage” model, where there is a systemic increase built in but tied to improvements in skills and productivity. This is in contrast to a straight minimum wage mode, which detractors argue drives up salary costs unjustifiably.
Instead of tackling income inequality, there is a growing call for the wealth gap to be addressed. In a normal year, household wealth should track GDP. This was upturned last year, when the rich got richer despite the pandemic. Four countries, according to Credit Suisse, stood out: Belgium, Canada, Singapore and the UK. They suffered the most economically with an average contraction of 7.1% last year. Yet, individuals enjoyed unusually high wealth gains averaging 7.7% net of exchange rate considerations.
One popular way people are growing their wealth is through property investments. “Globally, property has become an investment asset class. Getting on the housing escalator to get rich has become a trend across the major urban centres of the world,” says Menon. Singapore has been no exception with people being seen apportioning an increasing proportion of their income to buy property in prime locations. What this triggers is a rise in housing prices relative to income.
In his IPS lecture, Menon floated the idea of a wealth tax that could take the form of either a property gains or inheritance tax. However, he notes that eight of 12 European countries which levied a wealth tax in 1990 abandoned it by 2018 due to high administrative costs, risk of capital flight, and, ironically, failure to meet redistributive goals.
"This is not necessarily a reason for not imposing a wealth tax but a strong caution that designing a good wealth tax is not a trivial exercise,” he explains.
Economists Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley, have proposed slapping a 0.2% tax on the market value of listed companies. This is in effect a wealth tax on the shareholders. With the top 1% of the highest pre-tax income from the US owning about 30% of all publicly traded stocks, the economists have reason to believe that the move will level out the wealth disparity.
Estimates put the stock market capitalisation of the Group of 20 (G-20) richest nations total to about US$90 trillion ($121 trillion). This means that such a tax would raise US$180 billion a year — almost double the amount that would be raised by the proposed global minimum tax on profits.
Singapore — like many other countries in the world — is at a dichotomy on how best to address wealth and income inequality.
Still, it is heartening that the nation has been proactively helping those in the lower income bracket with handouts. It will help people like Chia progress to better paying jobs while helping Singapore move one step closer to addressing inequality.
Cover photo: Albert Chua/The Edge Singapore
