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Tackling inequality requires robust measures and clear standards

30 May 2018

In the ongoing debate about inequality and social mobility in Singapore, opinion has been divided over whether current policies have largely worked or whether more sweeping reforms are required.

Various new initiatives have also been suggested. What is one to make of these competing claims and suggestions?

To understand the current situation, we need robust measures of inequality, while to assess the impact of future policies, we need to have clear standards about basic needs.

How unequal is Singapore?

It increases - reflecting greater inequality - when there is more bunching at the bottom, and when the top incomes pull away more and accrue to fewer people. A coefficient of 1 indicates maximum inequality, while 0 represents perfect equality.

The figure cited for Singapore, 0.36 after government taxes and transfers, has frequently been compared to the Organisation for Economic Co-operation and Development’s (OECD’s) figures for the United Kingdom, which is also 0.36, and the United States, which is 0.39. However, this direct comparison is misleading.

Unlike the OECD figures, which are based on total disposable income and all households, the coefficient for Singapore is based on work income only, while excluding non-work income sources, such as rent collected, income from investments, government assistance, and cash contributions from relatives and friends.

This is not a negligible exclusion. In 2013, 10 per cent of average monthly household incomes came from these sources.

Non-working households are also completely left out. In 2017, almost 12 per cent of households had no working persons.

In Singapore’s case, if non-working households were included, there may be more households with low incomes within the overall distribution, leading to a higher Gini coefficient.

Rent and investment returns tend to go disproportionately to persons with higher work incomes since they are more likely to own financial assets.

This stretches out the top incomes in the distribution and will also increase the Gini coefficient.

However, non-working households may not all be low-income. More than half of the non-working households in Singapore are made up of older persons who are retired, rather than unemployed, and some may own financial assets.

Unemployed households may also receive non-work income such as government assistance and cash support from relatives. These will boost their total incomes and decrease income inequality.

Without analysis of complete household income data, it is difficult to say precisely what a more rigorous measure of Singapore’s Gini coefficient would look like.

Currently complete household income data are only reported every five years through the Household Expenditure Survey. The last edition in 2012/13 did not report the Gini coefficient.

As inequality becomes a policy priority, will we need more frequent collection of household income data?

Can improved Gini figures be reported more regularly alongside other standard inequality measures, such as the ratio of different income deciles and the income shares received by different decile groups?

Could we harmonise the way we collect and analyse inequality data with the best international practices to allow consistent comparison? Are we prepared to set targets for lowering inequality?

CLEAR STANDARDS ABOUT NEEDS

What do we wish to achieve by addressing inequality? As many have pointed out, inequality, mobility, and poverty are tightly related.

Inequality is more worrying, and mobility less likely, when the conditions at the bottom are so severe that they entrench disadvantage and impair opportunity for progress.

Therefore, it is critical that we have a set of clear standards about basic needs, based on a socially accepted understanding of an adequate and decent standard of living in Singapore today.

The notion of basic must encompass both material and social needs.

As the late British sociologist Peter Townsend explained, people are in relative deprivation when their “resources are so seriously below those commanded by the average individual or family that they are, in effect, excluded from ordinary living patterns, customs or activities”.

There are different ways to establish such standards.

The United Kingdom has developed a set of income standards for different types of households based on a participatory process where members of the public are invited to discuss and come to a consensus on the items and services required for a minimally adequate standard of living.

These things are then priced and converted into minimum budgets, which provide a reference for policy discussions about incomes and interventions.

The European Commission measures deprivation across member countries using a list of items that are considered essential, such as replacing worn-out clothes, two pairs of properly fitting shoes, getting together with the family for a meal once a month, and an Internet connection.

These items are chosen through population surveys and analyses of individual items’ correlation to poverty and health risks.

Clear standards about basic needs can help to focus policy attention, coordinate whole-of-government initiatives to address inequality, and promote public accountability for policy outcomes.

They help to mobilise civic efforts by articulating a concrete vision of society based on equality and dignity.

By incorporating the views of the public, including people experiencing hardship, these standards also reflect the broader aspirations of society, and not just expert opinion.

There is an opportunity now to introduce new policies, as well as to institute the principles and practices of policymaking that will endure even as policy conditions change.

If the challenges of inequality are important to tackle, then they are also important to understand, monitor, and account for.

Robust measures and clear standards can foster public understanding and the broad-based support that will enable policymakers to make the bold changes that Singapore needs.

Ng Kok Hoe

Assistant Professor