Income Inequality: Why does it exist

by Darya Ebrahimi

Unsurprisingly, salaries are a big part of life and the foundation of people's livelihoods. If they can, most of the population will have their life revolving around their work and the amount of money they earn. Hence, this can often lead to our identities being shaped by our job and everyday work, and our income becomes yet another scale of measuring self-worth. For this reason, the discussion around income inequality is often stifled as it is a sensitive topic for most people. Despite all of this, it is still an important topic and should be discussed openly to inspire change and development in a nation. A great majority of the Malaysian population feels that the income disparity between the rich and the poor is ever-widening, which they also believe is further supported by rising living costs.

What is income inequality? Why does it exist, and how does it affect us?

Income inequality is a pretty simple concept; in a nutshell, it considers the difference between levels of earning between different people and groups in Malaysia. At its core, it is the question of "How much does one person make compared to the other?". However, income inequality is not always bad; in fact, a healthy level of difference between incomes is an incentive and can stimulate the economy to grow. As the current economic system practised widely is capitalism, the disparity between incomes increases productivity and competitiveness in people. For example, income inequality can result from one employee working full-time and the other part-time but completing the same work. Although an economic explanation exists for inequality, it would not be in the people's best interest from a social perspective. Instead, if capitalism were to be used unsupervised and rampant with a lack of government intervention, the inequality caused would have severely harmful effects not just on the economic state of the nation but, subsequently, the political and social state.

Photo by Kelly Sikkema on Unsplash

But how can inequality be controlled and addressed?

Well, there are various ways the issue of income inequality could be addressed, such as social programs and taxes. In 2019, the percentage of Malaysians living below the poverty line stood at 5.6%. However, according to new statistics, due to the COVID-19 pandemic, this percentage has seen a rise to 8.4% of Malaysians living in poverty in 2020.

Here are 3 ways the government can engage in eradicating poverty:

  • Provide opportunities for underprivileged communities to have access to education, and lift the levels of education by shifting focus to life skills and business practices alongside traditional forms of education.
  • Provide government-funded empowerment programs to strengthen social safety nets.
  • Introduce policies focusing on developing the economy with fair income distribution plans to eradicate poverty.

In summary, to stimulate change in the income distribution currently present in Malaysia, there are, as mentioned before, a few routes the government can take. An increase in levels of education will have a direct effect on the reduction of income inequality. Time and time again, it has been proven that higher education leads to higher income. That said, higher education is a luxury for those who can not afford to attend universities. The government providing assistance and educational opportunities without a fall in the quality of education will definitely lead to much-welcomed changes.

Furthermore, by putting forth a relatively large budget for social expenditure, the government can curb poverty and reduce income inequality. Through these increased wealth distribution efforts, Malaysia has previously been able to increase narrow income disparities from 2009 to 2014. Finally, taxes. Taxing somewhat based on income brackets can alleviate the effects of income inequality and reduce poverty.