• What is the level of household income in Perak?
• What are the sources of household income in the state?
• What are the measures to uplift the level of household income in the state?
There are various indicators that measure economic well-being; some are more accurate than others in a given situation. While gross domestic products or GDP indicates the economic wellbeing of a country, household income is arguably an accurate tool to measure prosperity of communities in a given area. It determines their economic category, that is, whether they are above or below the poverty line. The more income a household generates the better is its chance in gaining access to a higher standard of living.
Perak has seen encouraging development in reducing the incidence of poverty, reducing the number of B40 households as well as improving the distribution of income. Various initiatives to improve the lives of the population have been implemented particularly in supporting the creation of job and business opportunities. One of the indicators that the state can be proud of is its ability in narrowing the gap in income distribution which is measured by the Gini coefficient.
Over a period of seven years, income inequality has dropped from 0.4% in 2010 to 0.362% in 2016 due to the government’s efforts to achieve equal distribution of income.
However, this does not necessarily mean that households in Perak are better off as inequality reflects equity of household income or equitable distribution of household income in the state. In measuring the extent of prosperity generated by economic growth and development, an analysis of the level of household income in the state is required. This can be done by analysing the median household income and the sources of household income. In addition, disparity in the median household income between the urban and rural areas will also be useful.
Only then policymakers will be able to have a clearer picture on the state of household income and accurately assess existing economic policies and their ability to uplift the status of household income in the state. This is crucial amid the rise in the cost of living, housing, education, healthcare and other necessities. In order to achieve an inclusive and sustainable growth and development, household income will be one of the key target areas as the government needs to provide quality income for the people. As such, serious thought has to be put in place in the pursuit of high household income while curbing rising cost in Perak.
THE SCENARIO IN PERAK
At the national level, Perak remained in the bottom four with regards to Median Household Income over a period of two years. The gap between Perak Median Household Income and the National Median Income is getting bigger; from RM1,134 in 2014 to RM1,222 in 2016. This despite the state’s median income rising from RM3,451 in 2014 to RM4,006 in 2016.
Within the state, the situation is not encouraging either with household income in most districts being below the state’s median level as shown in Fig. 3. In 2014, three districts – Manjung, Kinta and Larut-Matang – recorded household income above the state median level of RM3,451. However, as the state median level rose to RM4,006 in 2016, only two out of 10 districts were above the median level as Larut-Matang fell below the state’s median level. This reflects the dire situation in the state where households grappled with low income amid the rising cost of living, housing, healthcare and other basic necessities. This indicated that instead of seeing a rising standard of living, household standard of living in Perak was declining.
SOURCES OF HOUSEHOLD INCOME IN PERAK
Data from the Department of Statistics Malaysia revealed that a large percentage of household income was generated through paid-employment, current transfers and self-employment. Current transfer refers to current account transactions which give something of an economic value, such as a real resource or financial item, without receiving something of economic value in exchange. In other words, it includes hand-outs like children sending money to their parents or financial assistance.
In 2014, the top two income generators were paid-employment and self-employment. This suggested that household incomes in Perak were generated through jobs and entreprenuership. However, a different scenario was painted in 2016 where income through both channels declined and a new trend in generating income through investments and current transfer was on the rise.
Although the proportion of these two income generators were lower than paid-employment and self-employment combined, the declining percentage of income generated by paid-employment and self-employment was a basis for concern. This indicated that job and entrepreneurship opportunities were getting lesser and could be one of the reasons for the migration of skilled and qualified human capital to neighbouring states such as Selangor, Penang and Johor.
The rise in current transfers could be attributed to the increase in the number of Bantuan Rakyat 1Malaysia (BR1M) recipients which included those from the paid-employment and self-employed households.
On further analyses, Fig. 5 and Fig. 6 revealed that household income from paid-employment was higher in urban areas which corresponded to rapid urbanisation that was taking place in Perak. As such, it could be derived that more job opportunities were available in urban areas. With regards to household income generated from self-employment, the percentage was higher in rural areas. This showed that small businesses such sole-proprietorship and cottage industries were more concentrated in the rural areas. In addition, household income from property and investments were higher in urban areas while income from current transfers were higher in rural areas indicating that the spending power of households was diminishing.
Nevertheless, an intriguing scenario was that the magnitude of decline in paid-employment was higher in the urban areas compared with the decline in income from self-employment. Between 2014 and 2016, the percentage of income generated by paid-employment in urban areas dropped by 6.6% against 3% in the rural areas; an indication that job opportunities were becoming scarce in the urban areas. Income from self-employment increased by a meagre 0.7% in the urban areas but declined by 3.2% in the rural areas.
IMPLICATIONS TO PERAK
What is worrying is that there is a decline in income generated by paid employment and selfemployment. This not only shows lack of new employment opportunities but also low purchasing power to the point that people who are selfemployed cannot sustain themselves. This trend has serious implication: it can disrupt the state’s focus on g rowing the economy because much of the attention will be directed towards addressing survival issues faced by the people.
• Increased government expenditure on hand-outs
The drop in gross household income and reliance on government hand-outs may put a strain on the government’s expenditure. As household expenditure increases due to inflation and prices, households may be forced to rely on the government to keep up with their expenses. This can lead to a strain on the government’s reserves which are needed for productive development purposes.
• Rise of the household debts
Based on the Department of Statistics, household expenditure is increasing at a much faster rate than income. This raises concerns about the rise of households to fund their expenses as income growth is not in tandem with the rise in the cost of living. As shown by the Department of Statistics, more than half of the household income is spent on housing, food, utility, transportation and other basic needs whose prices have risen substantially.
THE WAY FORWARD
Despite various initiatives implemented by the state government in the past, there is still more that needs to be done in Perak to achieve higher and sustainable economic growth. The state government needs to:
1. Work cohesively with stakeholders
The government needs to work cohesively with the NGOs, stakeholders and the business community to identify issues that impede revenue growth of the cottage industries and SMEs which influence the wages and salaries of the paid-workers and income of those who are self-employed. This will be the basis for strategic policy implementation to stimulate income growth among the labour force and the self-employed. As such, it is time for the state government to be unorthodox and to be creative when devising policies like providing training for low-skilled employees and supporting development of platforms for cottage industries and SMEs to penetrate into other states and regional markets.
2. Set up a one-stop centre for investors
The state government needs to attract investors, both domestic and foreign, to create more job opportunities in targeted sectors that can propel exponential growth. In order to do this, several measures can be adopted by the government to make Perak an attractive destination for investors. Incentives to investors must be more attractive. A one-stop centre in Perak should have integrated procedures for establishing business in Perak. This should include system where approval can be applied, tracked and notified in one single place.
3. Strengthen business and entrepreneurship support
Strengthening support and platform for startups particularly in utilising digital platforms for small scale businesses to penetrate into domestic market. Among the support that can be offered include financing and monitoring. There is already an existing machinery in the form of Pusat Pembangunan Usahawan PKNP whose programme should be reviewed so that it will achieve the desired outcome.
4. Work towards alternative labour solution
There is a shortage of labour in the state. Industry-based initiatives launched by the state government to drive economic growth are facing problems due to labour shortage. Rather than bringing in foreign labour, a readily available local source of labour should be utilised to fill in the shortage. Alternatively, Rohingya refugees is viable source of labour. The state government can discuss with the federal government to permit Rohingya refugees to work in plantations and factories. And, since they are stateless there will be almost zero outflow of remittances.
5. Set up business start-up fund
The objective of setting up of this fund is to provide financing solutions to the business community as an alternative to the conventional financing provided by banks and financial institutions. The fund should function as a facilitator managed and monitored by a committee. This is best done by collaborating with private venture capital to maximise the success rate of start-ups in Perak. The start-up fund will also operate as a body that will monitor the expenditure of businesses upon disbursement to reduce the possibility of mismanagement of the funds granted and ensure the funding meets the purpose of the business entity.