Income Inequality in Malaysia: Examining the Labour Income Links

Malaysia's long-term development plan Shared Prosperity Vision 2030 broadens the discourse on inequality by drawing attention to the labour income share as an indicator of the inequality between labour and capital owners. However, available evidence shows that anchoring inequality on a higher labour income share that is underpinned by broad-based growth in low value-added activities may be at odds with Malaysia's ambitions of technological upgrading, moving towards higher productivity, and utilizing capital-intensive modes of production. Against this backdrop, this paper makes the argument that the missing piece in this narrative is the labour income dispersion. The effects of labour income on income inequality in Malaysia depend more on the labour income dispersion than the labour income share.