Income gap narrowed last year

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Real income, despite severe inflation, was up by 1.8%-5.4%
By Aaron Low

THE income gap in Singapore last year narrowed for the first time in 10 years, as families in all income groups enjoyed higher earnings.

A key reason for the rise in income was the buoyant labour market, which saw more people with jobs and drawing higher salaries.

Even the severe inflation did not make a dent in people’s earnings. Real income for all income groups went up by between 1.8 per and 5.4 per cent.

The narrowing of the income gap is shown in the decline in the Gini coefficient which measures income inequality. It fell from 0.489 in 2007 to 0.481 last year. If government help is taken into account, the figure drops further – from 0.479 to 0.462.

These figures were given yesterday in an occasional paper by the Statistics Department on household income trends in 2008. It surveyed 1.09 million households, of which 91 per cent had at least one family member working.

On average, the monthly income of all households rose by about $700 in a year, from $6,300 in 2007 to $7,090 last year.

This was more than the previous increase of $580 from 2006 to 2007.

The group enjoying the biggest jump was the middle-income family making $6,730 a month. Even after inflation was taken into account, their annual income per family member rose the fastest, at 5.4 per cent last year.

Worst off were the bottom 20 per cent of homes. After working in inflation, which was 5.5 per cent last November, the bottom 10 per cent earned just 1.9 per cent more last year. The 10 per cent above them made 2.9 per cent more.

DBS economist Irvin Seah said the cost of food and basic necessities, which form the bulk of expenses of lower-income households, went up in the first half of the year, resulting in smaller real income increases.

Professor Hoon Hian Teck, from the Singapore Management University, noted that the inflation rate for the bottom 20 per cent was about 7.5 per cent. It ranged between 6 per cent and 6.3 per cent for families in the top 20 per cent.

But he added that government aid in the form of GST credits and Workfare Income supplements helped improve the lot of the lower-income families.

Said Prof Hoon: ‘Since a relatively larger share of the Budget Surplus sharing package went to poorer households, this would address to some extent the greater impact of inflation, such as higher food prices, on the lowest bottom group.’

This group tends to live in one- and two-room HDB flats. On average, each person living in these homes got about $1,670 from the Government last year.

The sum is more than double the $720 given to residents of private property.

Economics professor Tan Khee Giap of Nanyang Technological University noted that government aid helped prop up the lower-income households.

‘This was the result of the targeted approach promised by the Government; take from all, give more to a few,’ said Prof Tan.

The job market was the main reason households here were better off last year.

Some 200,000 jobs were added in the first nine months of last year while salary increases ranged between 3.1 per cent and 10.6 per cent for the year.

At the same time, more people from all households joined the workforce.

For one- and two-room flats, the proportion of homes with more than two people working went up from 15.3 per cent to 18 per cent. Likewise, for families in three-room flats. It rose from 40.2 per cent to 42.1 per cent.

Prof Tan warned that this year will probably see a reversal of last year’s trend. ‘We should be worried about the lowest income earners because their income saw only a marginal increase in a good year,’ he said.

‘This year, expect to see their income move into negative territory, unless the Government takes drastic measures like vastly improving Workfare by giving more payouts in the scheme.’

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