Continuing from my previous post, I wanted to talk about income inequality in Singapore, which is really a fascinating topic.
The most widely used measure of overall wealth distribution and income inequality is the Gini index or coefficient. As a refresher, a Gini coefficient of 1 describes perfect inequality, while a coefficient of 0 describes perfect equality within the country’s borders. When compared against other countries, the coefficient does not provide a reliable measure of absolute wealth or the equability in the quality of life. Rather, it provides a basic understanding of how much wealth is distributed relatively among the households of each individual economy.
According to Singapore’s most recent Key Household Income Trend survey report, Singapore came away with a Gini index of 0.457, before taxes and government transfers in 2012. It barely made a dent in its income discrepancy after taxes and transfers, however, with the coefficient remaining high at 0.437. When contrasted against other OECD countries (albeit with minor differences in reporting years and time scale), a different pictures emerges altogether:
The chart on top contrasts the Gini coefficient of Japan, US, Denmark, and Singapore, with the red line representing national income distribution before taxes and government income transfers, and the blue line representing income distribution after taxes and transfers. The chart below contrasts the population and wealth data for the same four countries.
Few observations are in order. First, Singapore is much less equitable compared to other OECD countries after taxes and government transfers. Even though pre-tax & transfer income distribution levels are similar to other countries, the difference is evident by the observed distance between the red and blue lines for each graph in Chart 1.
Second, Chart 2 tells us that Singapore is similar to Denmark in terms of population size and share of world wealth (%). Comparing other wealth measures per capita, the island nation rivals that of other OECD nations. Yet its government’s focus is clearly not on income redistribution but rather on economic growth. Professor Tommy Koh of National University of Singapore’s famed School of Public Policy argues that it is this lack of inclusive growth that drives Singapore’s national on cheap foreign labor supply that further drives income inequality in the country.
This argument is especially interesting in light of United States, where there is a heightened perception of inequality vs more egalitarian European countries. Looking at 2010 post-tax income distribution levels, US inequality levels measured a Gini coefficient of 0.380. While US inequality was significantly greater than that of Denmark (0.252), it was appreciatively lower than Singapore (0.437). It is then telling that US federal marginal income tax rates can climb up to 40%, in contrast to Singapore’s flat 20% tax rate beyond incomes over S$320,000, amended in 2012 in interest of attracting top-earning foreign talent.
Observing the growing number of anti-immigration rallies centering on the inclusion of foreign labor, it is then no surprise that exacerbating inequality levels are becoming a hot-button policy topic. There is no doubt that growing unrest will force the local government’s hand to address its growing trade-off between economic development and social stability sooner than later.