How Big of a Problem is Income Inequality in Singapore?

Income inequality is a major concern for rich and poor countries, alike. Severe income inequality can be divisive and even lead to social unrest. With that said, is income inequality a problem in Singapore? If so, how severe is it?
SGD

With GDP per capita of S$79,697, Singapore is one of the richest nations in the world. However, like many other countries, it faces concerns regarding rising income inequality among its residents. In this study, we analysed publicly available data to determine the severity of income inequality in Singapore.

Study highlights:

  • Income Gap: The income gap seems like it has increased in absolute dollar terms, but has actually improved as low-income workers have experienced the fastest wage growth since 2007.
  • Middle of the Pack: Singapore has lower income inequality than U.S. and China, but higher income inequality than South Korea and Japan.
  • Intergenerational Mobility: Singapore has shown better intergenerational income mobility compared to other developed nations like the U.S. and the U.K.

Income Gap Appears to Be Expanding

At first glance, income inequality in Singapore may seem to be widening. For example, the richest 10% of households saw their monthly income per household member grow from S$8,571 in 2007 to S$13,215 in 2017. In contrast, the poorest 10% of households experienced an income growth of S$219 during the same time frame. This would suggest that the income gap between Singapore's highest and lowest income earners grew by 54% from S$8,236 in 2007 to S$12,661 in 2017.

Income Gap Between Highest and Lowest Income Earners in Singapore is increasing

Lower Income Groups Have Experienced Fastest Wage Growth

However, there's more to the income gap than meets the eye, and the income inequality situation may not be as bleak as the widening income gap suggests. In fact, while rich Singaporeans have seen more significant income increases in absolute dollar terms, low-income earners have experienced faster income growth in percentage terms. For example, low-income earners experienced 65% - 77% income growth since 2007, higher than 54% - 70% experienced by the top 40% of earners. Therefore, the income gap is actually improving in percentage terms for most income groups.

Income Growth by Decile 2007 - 2017

To illustrate how the income gap can increase in absolute dollar terms while the incomes of low-income individuals increase more quickly, imagine a worker that earns S$20,000 per year compared to another individual that earns S$100,000 per year. Even if the first individual earns a 10% raise and the second receives a 5% raise, the second individual will experience a bigger jump in income (S$5,000) than the first individual (S$2,000). However, if such disparity in their income growth rate persists, the low income group will eventually catch up to the wealthiest group.

Government Taxes and Transfers Have Helped Constrain Income Inequality

Furthermore, government transfers have helped to mitigate income inequality in Singapore. For example, Singapore's 90/10 income inequality ratio, which measures inequality by comparing incomes of the richest 10% of a nation to the poorest 10%, declines significantly when accounting for government transfers and taxes. This would imply that the government has been effective in reducing income inequality. Additionally, the gap between the 2 ratios (including/excluding taxes and transfers) has widened in recent years, further confirming the efficacy of taxes and transfers in reducing the impact of income inequality.

Ratio of Monthly Household Income for Work per household member

International Comparison: How Does Singapore Compare to Other Countries?

Singapore has a similar level of income inequality as other rich nations and Asian nations, judging by its Gini coefficient, which is a commonly used measure of relative wealth or income distribution. While the country has less income inequality than the United States, China and India, it is significantly more unequal compared to South Korea and Japan. It is also worth noting that the Gini coefficients from other rich nations such as the United States, U.K., Australia and Japan decreased more significantly after accounting taxes and transfers compared to Singapore's. This suggests that these governments might have done a better job containing income inequality through taxation and redistribution.

Gini Coefficient by Country

While Singapore does not have the most equal income distribution, there is reason to believe its economy is still relatively meritocratic. For example, a study by the Ministry of Finance found that there is more intergenerational income mobility in Singapore compared to countries including the United States, United Kingdom, Denmark and Canada. In particular, the study found children born into the poorest families in Singapore were more likely to become top 20% income earners themselves than poor children from other countries. This income mobility suggests that Singapore's economy provides better opportunity for all of its citizens.

Income Quintile Reached by Children Born into Families in Lowest Income Quintile

Conclusion

The picture of income inequality in Singapore is complicated. On one hand, the country has seen a significant income gap between its richest and poorest residents grow in dollar terms in recent years. On the other hand, Singapore has experienced dynamic growth, which has benefitted all workers, with low-income individuals experiencing faster wage growth than high-income individuals. Additionally, there is reason to believe government measures have reigned in income inequality to some degree, though other countries have been more successful at this. Finally, while Singapore has room for improvement, it compares well to some other major countries in terms of income inequality and mobility. Like any other country with an economy based in capitalism, Singapore will have income inequality. Available data suggests that while the country should monitor and could continue to improve its distribution of income, it is heading in the right direction.

Methodology

In order to study the severity of income inequality in Singapore, we gathered publicly available data related to income trends and distribution. This information gives a sense of trends of income inequality within Singapore. We also considered international data in order to understand how Singapore's income distribution compares to other countries. We did not consider wealth inequality due to a lack of available data. However, wealth distribution is another very important measurement for understanding the characteristics of inequality within a country.

Sources:

  • Singapore Department of Statistics - Key Indicators On Household Income From Work Among Resident Employed Households, Annual.
  • Singapore Ministry of Finance - Income Growth, Inequality and Mobility Trends in Singapore.
  • Organisation For Economic Co-Operation and Development (OECD) - OECD.Stat Income Distribution and Poverty, Gini Coefficients.
William Hofmann

William is a Senior Research Analyst at ValueChampion Singapore, focusing on banking and SMEs. He previously was an Economic Consultant at Industrial Economics Inc.

Comments and Questions

{"endpoint":"\/newsletter\/subscribe","style":"blue","title":"Keep up with our news and analysis.","version":"sidebar"}