Essay Example on Factors that Influence Income Inequality

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BACKGROUND OF STUDY There are many researches done to investigate or study the factors that influence income inequality Based on this research by using different conceptual and methodology framework it will focus on determine the factors that will impact income inequality in Malaysia Income inequality generally can be defined as the unequal distribution of household or individual income across the various participants in an economy Other than that income inequality also can be defined as the people's positions related to other characteristic such as whether or not they have a disability or whether their ethnic background In Malaysia there is a multi ethnic society with three major ethic groups Malay Chinese and Indians Income distribution show dramatic differences among ethnic of Malaysia between rural and urban subgroups that leads income inequality rate risen every years Commonly high income inequality rate leads to social and economic problems in the community as a whole For example poor people have worse health than the rich people because poor people not enough money to get better healthcare or children do not perform as well at school as those of affluent families Commonly the way to measure income inequality is a ratio called the Gini Coefficient Gini Coefficient is measure of income inequality across the whole of society into single number between 0 and 1 rather than simply comparing different income groups With a scale of 0 and 1 a value of 0 means everyone in the society has the same wealth while a value of 1 means one person has everything and no one else has anything The higher the number the greater the scale of income inequality Based on this research do the other factor such as inflation rate INF foreign direct investment FDI gross domestic product GDP and education level EDU give impact on income inequality in positively or negatively way The relationship between income inequality inflation rate foreign direct investment gross domestic product and education level will briefly explain in the literature review 1

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2 PROBLEM STATEMENT Income inequality one of Malaysians appears to be increasingly concerned For the last 40 years the income inequality in Malaysia has improved over the time period from 1970 to 2014 The Gini coefficient has dropped considerably from 0 51 in 1970 to 0 401 in 2014 Even though the income gap is getting smaller the inequality might still be higher than it should be This is because the income inequality in Malaysia is still far higher than other ASEAN countries regarding to the Gini coefficient There are many sector will affect the income inequality such as inflation foreign direct investment gross domestic product and education level Since minimum wages in Malaysia that companies pay their staff is RM1000 a month in the peninsula and RM920 in Sabah and Sarawak It shows that the monthly income of Malaysia has risen This seems to be great tendency towards higher living standard of people in Malaysia However if standard of living people increases it will cause gross income growing rapidly than the real income As a result inflation rate will increase and the purchasing power of people will be decrease In addition foreign direct investment sector also affected the income inequality Through foreign direct investment country and regions can get the chance to reach the standard of living Malaysia is in a strange position at present concerning foreign investment For example is political issues particularly the scandal involving 1MDB Bhd 1Malaysia Development Berhad investment arm of Malaysian government Allegations of corruption at the highest level are having a negative impact on sentiment towards country While these allegations have yet to be legally substantiated they are to a certain degree already affecting economy across all sector Some investors worried about the risk if their making investment in Malaysia

Due to the scandal foreign direct investment will decrease Particularly foreign direct investment will contributing to the gross domestic product begin to decline As reported by BNM The Malaysian economy grew by 5 0 in 2015 and in 2016 the Malaysian economy recorded a growth of 4 2 It show the Malaysian growth rate slowed quite sharply in 2016 and that was actually warranted the country Both sector foreign direct investment and gross domestic product can influence the widening income gap Income inequality may also happen due to level of education in country When country have a higher level of education and high skills it will reduce the inequality in wages In Malaysia there are only 5 of young adults from bottom income quintile have a bachelor degree compared to 40 from top quintile On average 84 of Malaysians with a bachelor degree are in the middle and upper classes Due to the unequal society the poor are unable to afford to pay education fees or spend the time in the school that could have otherwise been spent working As a result the society wide average level of education decrease while the number of educational elites increases as the rich become increasingly wealthy

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