Singapore's Income Growth and Inequality

A Deep Dive into Last Year's Financial Landscape

In 2024, Singapore witnessed a significant uptick in median monthly household income, reaching an impressive S$11,297, marking a 1.4% increase in real terms after adjusting for inflation. This growth, while notable, reflects a deceleration from the previous year's 2.8% rise in 2023, suggesting a cautious economic environment where growth is more measured than in recent history. This increase in household income is not merely a number but a reflection of Singapore's resilient economic strategies amidst global economic fluctuations, including inflation rates and cost of living adjustments.

The adjustment for inflation is crucial as it provides a more accurate picture of the economic health of households. With inflation rates having shown signs of cooling down in Singapore, as evidenced by the latest consumer price index (CPI) data, this 1.4% real term increase could be seen as a positive sign. However, the slower growth rate from 2023 to 2024 indicates a possible stabilization rather than an aggressive expansion of income, which could be linked to a variety of factors including global economic conditions, local policy impacts, or shifts in employment structures.

Household Composition and Income Distribution

When accounting for household size, the median monthly income per household member increased by a modest 0.8% in real terms, from S$3,500 in 2023 to S$3,615 in 2024. This metric is particularly telling because it reflects how income is distributed across individuals within a household, highlighting the impact of economic growth on per capita income. Over the last five years, this figure has grown by an average of 1.3% per year in real terms, which, while positive, underscores a trend of incremental rather than transformative growth in individual income levels.

The distribution of income across different deciles further illuminates the nuances of Singapore's economic landscape. In 2024, all income deciles saw an increase in average household income per member, with both the lowest and highest deciles experiencing a 3.2% rise in real terms. This parity in growth at the extremes of the income spectrum might suggest effective policy measures aimed at reducing income disparity. However, the fact that the top decile saw a decrease in income growth from 2019 to 2024 by 0.7% per annum might indicate a shift towards more equitable income distribution or could reflect changes in high-income job sectors or investment income.

Government Intervention and Social Equity

One cannot discuss Singapore's income dynamics without acknowledging the significant role of government transfers in 2024. The average government transfer per household member increased to S$7,825 from S$6,418 in 2023, showcasing the government's commitment to supporting households through various schemes aimed at cost-of-living, retirement, and healthcare. This increase was particularly pronounced for residents in one- and two-room Housing Development Board (HDB) flats, where the average transfer per member was S$16,805, more than double the national average. This focused support indicates a targeted approach to mitigate the effects of inflation and economic disparities among the lower-income segments of society.

The Gini coefficient, a measure of income inequality, provides further insight into these dynamics. Before government transfers and taxes, it increased slightly from 0.433 in 2023 to 0.435 in 2024, suggesting a marginal increase in income inequality. However, after accounting for government interventions, the coefficient dropped to 0.364, the lowest since records began in 2000. This significant reduction in the Gini coefficient post-adjustment underlines the effectiveness of Singapore's social safety nets in alleviating income disparities.

The Median Metric: An Accurate Representation?

The use of median income as a benchmark is often debated for its representation of average household wealth. While the median gives a middle ground, avoiding skew by extreme values, it does not capture the full spectrum of economic disparity. For instance, global wealth reports from Credit Suisse indicate that while median wealth in Singapore stands at around S$134,308 per adult, the mean is significantly higher at approximately S$516,991, highlighting a vast wealth gap. This discrepancy suggests that while median income might reflect the situation for a typical Singaporean household, it might not fully encapsulate the experiences at the tails of the income distribution.

The median's accuracy is also challenged by the changing nature of household structures, with more single-person households or multi-generational living arrangements potentially skewing the per capita income figures. Moreover, the median does not account for non-wage income such as investments, which could be substantial for higher-income brackets.

The Path Forward

In my view, Singapore's approach to managing economic growth and inequality through government transfers is a double-edged sword. On one hand, it has effectively cushioned the impact of economic fluctuations on the lower-income populace, promoting a semblance of social harmony. On the other hand, there's a risk of creating dependency rather than fostering economic resilience through job creation, skill enhancement, and entrepreneurial ventures.

The median income metric, while useful for broad strokes economic analysis, might not serve as the best indicator for policy-making aimed at reducing inequality. More granular data, possibly through detailed income decile analysis or alternative metrics like the Palma ratio (which focuses on the ratio between the top 10% and the bottom 40%), could provide deeper insights into income distribution.

Looking ahead, Singapore should perhaps consider policies that not only redistribute wealth but also encourage wealth creation across all income levels. Investment in education, technology, and innovation, alongside supportive policies for small businesses and startups, could be key. This approach would not only stimulate economic growth but also ensure that this growth is inclusive, reducing the reliance on government transfers over time.

​The challenge for Singapore is to maintain its economic dynamism while ensuring that the benefits of growth are genuinely shared across society, moving beyond the median to address the real complexities of income and wealth distribution.