Is The Income Gap Between The B40, M40 And T20 Groups Widening?

Is The Income Gap Between The B40, M40 And T20 Groups Widening?

Been hearing about B40, M40 and T20 in the news but not sure what they mean?

These refer to income groups in Malaysia, where B40 represents the bottom 40% of income earners, M40 the middle 40% and T20 the top 20%. These groups are further broken down into tiers, such as B1, B2, B3, and so on.

In 2019, the mean income was RM1,849 for households in the lowest tier, and RM24,293 in the highest tier. That’s a pretty big difference – the question is, is this gap increasing over time?

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Here’s what you need to know.

How are B40, M40 And T20 classified?

The Department of Statistics Malaysia (DOSM) recently released its Household Income & Basic Amenities Survey Report 2019, which provides updated figures for classifying these income groups. Note that these figures refer to household income (the average household size in 2019 was 3.8 persons), not individual income:

B40
M40
T20
B1
B2
B3
B4
M1
M2
M3
M4
T1
T2
Less than RM2,499RM2,500 - RM3,169RM3,170 - RM3,969RM3,970 - RM4,849RM4,850 - RM5,879RM5,880 - RM7,099RM7,110 - RM8,699RM8,700 - RM10,959RM10,960 - RM15,039More than RM15,039

The household income report also raised Malaysia’s average poverty line income (PLI) to RM2,208 from RM980 in 2016. The new metric brings Malaysia’s absolute poverty rate to 5.6% in 2019. This means that almost 6 out of 100 households in Malaysia could not afford to meet basic needs like food, shelter and clothing.

These income classifications matter because they help the government determine how to allocate aid packages.

How much do T20, M40 and B40 households earn?

The national mean monthly income in Malaysia last year was RM7,901. But the mean monthly income varies according to the income groups:

The income group you’ll fall into also depends on which state you live in:

The differences in income between each state can be huge. In states like Kelantan, Perlis and Pahang, earning a T20 salary could mean earning a similar salary to the M40 group in Kuala Lumpur.

Is the income gap widening?

There’s a big income gap between the lowest-earning and highest-earning income groups. Is this gap getting worse? Let’s look at the facts:

1. Income inequality has declined since the 1970s

The Khazanah Research Institute’s (KRI) State Of Households 2018 report stated that household income in Malaysia has steadily increased from 1970 to 2018. Malaysia’s Gini coefficient (a measurement used to represent income inequality – a higher number means that the income gap is larger) fell from 0.513 to 0.399.

This means that in the past few decades, household income has risen, and income inequality has declined.

 2. Why doesn’t it seem like income inequality has improved?

Okay, if official statistics say that income inequality has declined, why does it feel like the rich always get richer, and the rest of us are struggling to catch up? According to KRI, that’s because of the difference between the relative gap and absolute gap. For example:

  • A low-income household earning RM1,000 last year triples their income to RM3,000 this year
  • A high-income household earning RM10,000 last year doubles their income to RM20,000 this year

Last year, the high-income household would have earned 10 times more than the low-income household. This year, the high-income household earns 6.7 times the low-income household, lowering the Gini coefficient. This means that the relative gap has narrowed. But because the absolute gap (an earnings difference of RM9,000 last year vs RM17,000 this year) has increased, it doesn’t feel like inequality has improved.

3. There’s been an uptick recently

Although income inequality has improved over the past few decades, DOSM’s latest household report states that there’s been an uptick in inequality.

It increased to 0.407 in 2019, compared to 0.399 in 2016.

Are Malaysians socio-economically mobile?

Socio-economic mobility refers to your ability to move from one socio-economic group to the other. In other words, how easily can households from B40, M40 or T20 move to another income group?

The Khazanah Research Institute’s 2016 report on socio-economic mobility compared adults born between 1945 and 1960 against their oldest child born between 1975 and 1990. Their findings suggest that Malaysia has been relatively socially mobile across these two generations. Only 19% of a child’s income was associated with his or her parents’ income. But this doesn’t necessarily mean upwards mobility – among those surveyed, almost 3 in 4 of children born to parents in the bottom earnings quintile moved up, while 2 in 3 born into the top earnings quintile moved down.

“Children born to parents in the bottom income quintile did not generally stay ‘poorer’ as adults while those born to parents in the top income quintile did not necessarily stay ‘richer’ as adults,” stated the report. Factors like education, gender, race and geography (urban or rural) affect a child’s likelihood of upward mobility.

Just one (pandemic-sized) caveat

The TLDR is that income inequality has declined since the 1970s, although there’s been an uptick since 2016. But while the relative income gap has decreased, the absolute gap has increased, which could lead to the perception that income inequality has not improved over the last few decades.

However, it’s worth noting that the coronavirus pandemic would have affected many Malaysians’ income and spending habits this year. We don’t know the full extent of its effects yet, but so far the unemployment rate has risen to 5.3% in May (compared to 3.2% in January), and one in three employees reported a salary reduction greater than 30%. B40 and M40 households have been more vulnerable to loss in employment compared to T20 households. This could widen the income gap even further in the short term.

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