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Enhancing public debate on inequality in Singapore

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by June 20, 2014 General, Legal and Judicial

Authors: Mukul G. Asher & Chang Yee Kwan, NUS

The publication of Thomas Piketty’s 2014 book Capital in the 21st Century has brought the issue of income inequality to the fore of public policy debates in many countries. This is remarkable, given the book’s length (696 pages), the intricacy of the historical data series that forms the statistical foundations of the book’s main propositions, and its relatively narrow geographical focus (mainly the US, the UK, and Western Europe).

The issues of inequality, social mobility prospects, fairness and adequacy of social protection arrangements have recently risen to prominence in public policy debates in Singapore, and this is likely to continue.

According to Piketty, the key condition for increased inequality in societies is that the rate of return on capital exceeds the rate of economic growth. In Singapore, estimates of the rate of return on capital are not available, making it impossible to ascertain whether Piketty’s condition holds.

Another key metric studied in the book is the share of national income accruing to labour and to capital as factors of production. Data on the share of national income accruing to labour and to capital has been published (the capital share at around 55 per cent significantly exceeds labour share at 45 per cent, the reverse of the respective shares in most high income countries); however, it would be useful to have a longer and more consistent time series for these shares, as well as a disaggregation of each share. An expansion of the factor share trends to include labour and capital income accruing abroad, but not included currently, could also be useful as Singapore has large net external assets.

In Piketty’s book, the key indicator used for analysing household income is the share of income accruing to the top ten per cent of households. Household income from all sources and all factors of production is included.

In Singapore, the data on the distribution of household income only includes citizens and permanent residents who are employed. Furthermore, it only counts labour income, excluding capital income. The breakdown for the top 1 per cent of households is not provided. But the ratio of the income of households in the highest decile to those in the lowest decile has increased sharply from 11.5 in 2000 to 16.8 in 2013, suggesting rising inequality even for labour income, an issue that merits a considered policy response.

Even here, though, there is a need for much greater consistency: another official source, while not providing time series, reports the top 10 per cent of households receiving 24.1 times the labour income of the bottom 10 per cent in 2013. The difference between the two reported numbers is very large and requires explanation. As the share of the population that has retired increases and there are larger numbers exiting the labour force, this indicator — which, remember, only includes those who are employed — will be increasingly less informative. At a broader level, Piketty’s research culture and norms emphasising data transparency and replicability of the analysis merits greater appreciation by Singapore researchers and policymakers.

The estimates for Singapore’s Gini coefficient — a widely used indicator of household income inequality — includes only wage income in Singapore, excluding capital income that is usually much more unequally distributed. The unadjusted Gini coefficient is officially estimated at 0.47 (the coefficient ranges from 0 to 1, with a higher value implying greater inequality), and just under 0.46 after transfers and taxes. If capital income were included, the coefficient would likely be significantly higher.

The figures above pose serious questions for policymakers: is a growth strategy that requires persistently and significantly higher capital shares really desirable?

The absence of social insurance in Singapore’s pension and health care financing mechanism also impacts on the fairness and adequacy of social protection arrangements in Singapore, and also on inequality. In Singapore, all employees pay part of their wages into the Central Provident Fund (CPF), the savings from which can be disbursed to pay for medical care and as retirement income. In order that we might get a better picture of inequality in Singapore, consideration should be given to publishing the actual cash balances of all members of the CPF, classified by age and sex, as well as actual nominal and real returns on CPF balances (which were SGD253 billion in 2013, or about 68 per cent of Singaporean GDP). It would also be helpful to publish household consumption and income-expenditure surveys on a regular and consistent basis.

These would be consistent with the spirit of Piketty’s book, and would help better appreciate Singapore’s position in the current global debate on inequality.

Mukul G. Asher is Professorial Fellow at the Lee Kuan Yew School of Public Policy, at the National University of Singapore.

Chang Yee Kwan is Research Fellow at the Lee Kuan Yew School of Public Policy, National University of Singapore. 

This article is part of an East Asia Forum miniseries examining inequality in Asia. 

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