Reassessing Malaysian Poverty Measurement after COVID-19: A Multidimensional Perspective ^†

Abstract

Poverty is a multifaceted phenomenon that has always existed historically. In addition to discussions of poverty issues, aspects of poverty measurement are essential topics. A prominent poverty measurement system is the unidimensional measurement based on poverty line income (PLI). Therefore, the use of multidimensional poverty measurements is proposed, specifically the multidimensional poverty index (MPI), in assessing poverty, including non-monetary aspects. This study discusses the concept of unidimensional and multidimensional poverty measurement and the implementation of these concepts in Malaysia during the COVID-19 outbreak. Furthermore, it aims to contribute to the public debate on COVID-19 policy responses by quantifying the potential impact on global multidimensional poverty using the Global Multidimensional Poverty Index (MPI), which captures concurrent or overlapping deprivation at the household level. This study recommends policies by which members of the community and industry experts would be included in the poverty reduction program, in line with Maslow’s requirements. Overall, this research focuses on planning and orienting policy responses from a multidimensional perspective that integrates health, social and economic goals.

1. Introduction

Poverty is a multidimensional phenomenon [1]. In discussing the issue, the very concept of poverty should be understood. There was no general definition of poverty at the national level until the World Summit for Social Development in 1995, which defined absolute poverty as a lack of basic needs, including food, clean water supply, sanitation facilities, health, clothing, education, and information. In addition, poverty includes deficiencies in assets, income, health, education, residence, environmental safety, social levels, and culture.

Citing [2], who used the World Bank definition, poverty is a state of shortage of food, clothing, access to health facilities, primary education, employment opportunities, clean water, and social facilities. The study of [3] explains that the poor and extremely poor are trapped in a state of shortage due to poor health levels, family problems, poor source distributions, infrastructure imperfections, and various forms of limited employment opportunities. Dimensional poverty measurement is a qualitative leap forward in poverty care, as it involves shifting from measures based simply on income to others based on several social, labor, and environmental variables, which are extremely useful for defining public policy [4].

In addition, COVID-19 has also harmed shared prosperity, which is defined as income growth for the lowest 40% of a country’s population. Average worldwide shared prosperity is expected to stagnate or possibly decrease between 2019 and 2021 as average income growth slows. The pandemic-induced slowdown in economic activity is expected to disproportionately affect the poorest individuals, perhaps leading to even lower shared prosperity indices in future years [5].

Most of B40 and M40 has been involved in SME businesses, working as full-time employees in the industry. However, the COVID-19 pandemic in 2020 reduced the main sources of their income, especially paid employment, and self-employment, which was recorded as negative at 16.1% and negative at 9.7%, respectively. This reduction in income was caused by job loss and contributed to a decrease in working hours and an increase in skill-related underemployment. The median monthly household gross income registered a negative decline of 11.3% as compared to 2019. The value of the median monthly household gross income in 2020 was RM5209 (2019: RM5873) [6].

Globally, efforts to eradicate poverty have been paid attention to for a lengthy period. Currently, efforts to eradicate poverty continue through the implementation of the Sustainable Development Goals (SDGs). Their implementation has targeted 17 key goals in achieving sustainable development and poverty eradication is one of the main agendas by 2030. Poverty eradication in the context of SDG not only considered basic requirements but also considers multidimensional aspects. The diversity of the dimensions of poverty not only refers to income, but to basic facilities, education, social discrimination, and readiness in decision making.

In the context of Malaysia, the measurement of poverty uses a money matrix approach, i.e., the poverty lines income (PLI) system of measurement has been used for a long time. This measurement determines individual poverty according to the minimum income required for daily life. For example, if PLI is set at RM950 per month, individuals who earn less are categorized as poor. However, through the Eleventh Malaysia Plan (RMK-11), multidimensional poverty measurement (MPI) has begun to be introduced [7]. Here, the measurement of poverty is quite different from that discussed earlier and combines money and non-money elements.

Therefore, this paper’s main aim is to discuss the concept of unidimensional and multidimensional poverty measurement and, subsequently, focus on the measurement of poverty in Malaysia. As the pandemic spreads, understanding the extent of the threat it poses in terms of reversing development gains is critical for developing and implementing public policy. Therefore, this study can contribute to the study of poverty, especially in the body of literature related to the issue, and to the measurement of poverty after the COVID-19 pandemic. Besides, this paper aims to contribute to the public debate on COVID-19 policy responses by quantifying the potential impact on global multidimensional poverty as measured by the global Multidimensional Poverty Index (MPI) developed by [8], which captures concurrent or overlapping deprivation at the household level.

This paper is divided into four parts; the first discusses unidimensional poverty measurement or the money metric approach. The second part focuses on multidimensional poverty measurements. The next focuses on the measurement of poverty in Malaysia. Finally, this paper also examines issues that have led to the use of multidimensional poverty measurements in Malaysia.

2. Multidimensional Poverty Measurement

The cost of measurement of unidimensional poverty in measuring poverty has led to efforts to measure poverty from various dimensions. This readiness is clearly seen when a unidimensional approach only measures poverty using earnings to determine individual poverty. Multidimensional Poverty Approaches can overcome the weaknesses of the unidimensional approach as they consider non-monetary aspects such as health, education, and living standards in measuring individual poverty. Based on the concept of the “Capability Approach ‘, specified by [9], poverty not only refers to a lack of money but shortcomings in other social commands, for example, lack of health, education, and living standards. In other words, individuals with enough income but still lacking in non-monetary aspects can still be categorized as poor. This idea has led to a broader determination of poverty.

There are three main dimensions in forming MPI: Education, Health, and well-being. The study by [10] found that MPI methods reflected the widespread shortcomings faced in basic needs and core human functioning for people in 104 countries. Despite the availability of data, MPI measurements show different results compared to unidimensional poverty measurements. MPI measurements classify individuals as poor if they earn more than 30% of the defined deficiency. The difference in poverty rates is because, although individuals obtain an income that exceeds the minimum value set, they may experience shortages of other aspects and thus are categorized as poor if measured using MPI. The difference in MPI’s measurement compared to the earlier measurement of income is also evidenced by the studies of [3,4,8].

MPI methods are seen to be more flexible as they can measure poverty using primary and secondary data, although primary data usage is more often used [3]. The study by [11] has discussed the basic calculations of MPI using primary data in detail. In the basic calculations of MPI, two main computational components have been considered, poverty (H) and average poverty (A). The rate of poverty, (H), refers to the ratio of individuals with multidimensional poverty:

$${\mathrm{M}}_0=\mathrm{H}\times \mathrm{A}$$

(1)

where Q is the number of individuals categorized as poor and n is the population. Average poverty, A, illustrates the rate of the component of the indicator, D, on average, indicating individuals with deficiencies. For poor households, shortage scores will be summed up and divided by the number of indicators and poor individuals:

$$\mathrm{H}=\frac{{\sum }_1^{\mathrm{q}}\mathrm{c}}{\mathrm{QD}}$$

(2)

where C is the amount of weight loss experienced by poor individuals and D is the number of components of the indicator taken.

Table 1. Multidimensional Poverty Index (MPI) Calculation Data.

Indicators	Respondent				Weightage
	1	2	3	4
Household size	4	7	5	4
All 17-60-year-old household members have less than 11 years of schooling	0	1	1	0	¼ = 0.25
Distance to health facilities exceeding 5 km and no mobile health clinic facilities available	0	0	0	0	¼ = 0.25
Apart from the water supply in the house and the public water pipe/standing pipe	1	1	0	0	¼ = 0.25
SCORE CI (sum of each deprivation multiplied by its weight)	0.25	0.5	0.5	0
Household/poor respondent if less 2 indicators	No	Yes	Yes	No
Censored Score CI (k)	0	0.5	0.5	0

shows MPI data for respondents to calculate MPI.

Score for respondents or second household:

ci = (1 × 1/4) + (1 × 1/4) = 0.5

Poverty ratio (H) = [(7 + 5)/(4 + 7 + 5 + 4)] = 0.6

The value of 0.60 shows 60% of poor households.

Average poverty gap (a) = ⌊((0 × 4) + (0.5 × 7) + (0.5 × 5) + (0 × 4))/(4 + 7 + 5 + 4)⌋ = 0.3

Average poverty (a) = 0.3 for individuals with a shortage is 30% of indicator weights.

MPI value is designated through the value of the coordinated poverty rate ratio, Mo = MPI × A.

MPI = H × A

MPI, Mo = 0.6 × 0.3 = 0.18.

MPI value is 0.18. The MPI range is from value 0 to value 1. The higher the MPI value, the higher the value of dimensional poverty. Overall, MPI is a measurement that measures the multidimensional poverty faced by individuals, considering the average poverty faced by these individuals.

3. Poverty Measurement in Malaysia

The measurement of poverty in Malaysia began at the beginning of independence and has reflected a continuing pattern to this day. The implementation of the New Economic Policy (NEP) in 1970 was an aggressive measure of the government in eradicating poverty [4]. As a result, the poverty rate decreased from 49.3 percent in 1970 to 16.5 percent in 1990. The poverty rate continued to show a decrease to 3.6 percent in 2007 and its rate decreased to 0.6 percent in 2014 [12]. The decline in poverty rates involves urban and rural areas. Overall, the decline in poverty rates was due to the efforts of the government in implementing various poverty eradication policies and programs. Among the poverty eradication programs are land development, agricultural-based development, development of rural areas, and basic facilities and utilities [13].

In the context of poverty in Malaysia, poverty is described through financial perspectives or income [14]. This concept of poverty is divided into two, absolute poverty and relative poverty, as studied by [15]. Absolute poverty refers to the circumstances in which an individual or household cannot afford to meet the basic needs of enjoying minimal and reasonable welfare of life. These basic requirements are food, clothing, dwelling, education, and medicine. Absolute poverty is measured by comparing the comparison of a group of households with a level called the poverty line income (PLI). This PLI is determined based on the living standards of the country. PLI is a minimum income amount to allow households, on average, to accommodate food requirements, clothing, and basic expenses such as rent, fuel and energy, transportation and communication, health, and recreation, while poverty is determined based on the income level received with PLI, i.e., poor or not poor.

The official use of PLI in measuring poverty began in 1976, when the calculation of PLI is based on food requirements and basic needs [16]. Food items are based on Recommended Daily Allowances, calculated by a technical group of the Food Division of the Ministry of Health appointed by the Economic Planning Unit (EPU). Items for basic needs are based on demographic, gender, and age factors and include spending on education and recreation, transportation and communications, rentals, oil, and energy, clothing, and health care, as non-food items These basic needs are also guided by the World Bank’s Living Standard Measurement Study introduced by [17]. Among the items used by the EPU are clothing, rent and energy, transportation, and communication. Determination of minimum value for these items is based on income investigation and household expenses (HIES). Therefore, the measurement of poverty used is based on the needs of households in meeting basic food and non-food needs to ensure that every household leads an active, healthy, and proactive life.

In detail, there are two types of PLI calculations in Malaysia, i.e., PLI food and non-food. For the method of determining the food PLI, the requirements for the basic components according to the composition and size of the household will be identified by gender, age, recommended dietary allowance (RDA), nutrient component, and Physical Activity Level (PAL) [1]. Subsequently, the RDA value will be determined by considering the group, age, and nutrient components. Food retail price information is obtained by taking into account seven types of foods: (1) grain products, (2) meat, fish, eggs and chicken, (3) milk, (4) legumes, (5) oil and fats, (6) sugar and (7) vegetables and fruits. For the determination of non-food PLI, the type of goods and services is determined by reference to items (1) clothing and footwear, (2) gross rent, fuel, utilities, (3) furniture, equipment, and home furnishings, (4) transportation and services and (5) non-food items.

Although PLI involves a single value generation to measure poverty, the value is always reviewed and changes according to the current situation. The Government of Malaysia updates PLI values based on the Consumer Price Index (CPI). However, due to the differentiation in living standards between the Peninsula, Sabah, and Sarawak, the Government uses different PLIs. This means that the value of PLI for the peninsula is different compared to that for Sabah and Sarawak. For example, the Economic Prevention Unit (UPE) sets the annual PLI for the peninsula as RM950, whereas the PLI for Sabah and Sarawak is RM1160.

However, the concept and measurement of poverty as described are considered too narrow by [1], who claim that this concept ignores other important aspects of poverty such as facilities and social isolation. Efforts need to consider various factors, processes, and obstacles to enhance the lives of the poor for the better, whether economically, ecologically, or socially. Hence, there is an effort to assess the measurement of poverty so that these problems can be overcome.

Multidimensional Poverty Index in Malaysia

In Malaysia, traditionally poverty is measured using PLI. This approach categorizes household wealth based on certain levels of income. In 2010, the United Nations Development Program (UNDP) used a multidimensional poverty index (MPI in Human Development Report (HDR)). MPI is a method of relative poverty measurement practiced by developed countries. In line with this, Malaysia has also developed measurements of MPI at the appropriate national level for socioeconomic well-being within the National Development Framework. The use of MPI to ensure the transition of policy considerations beyond the mere issue of poverty includes all households affected. MPI measurement will complement PLI to measure and monitor poverty from multiple dimensional perspectives. Hence, the multidimensional poverty index (MPI) was introduced in the Eleventh Malaysia Plan (RMK-11), completing PLI and helping the government address B40 issues, as this measurement provides more complete information for the formulation of policy documents [7].

Currently, there are about 2.7 million B40 households with an average monthly income of RM2537. In the event that Malaysia continues to develop, B40 households should not be marginalized in enjoying opportunities resulting from the country’s prosperity. If B40 households continue to stay at their current socioeconomic position, this will result in social costs to the country through a reduction in the number of skilled workers required, affecting the growth of the country’s output. In addition, this will also cause continuous urban imbalance and affect the potential of rural and suburban economic growth. Employment opportunities, access to healthcare and education services and SSN can be expected to ensure that B40 households obtain the opportunity to enjoy a better life.

In the Malaysian context, MPI can measure access to basic facilities and services that help social mobility, enable intensity-based analysis, and subsequently identify the needs of low-income households more clearly. MPI is a measurement at the appropriate national level of socio-economic well-being for the country’s development framework. The use of MPI will ensure the transition of the consideration of policy beyond the issue of poverty, including all households affected. MPI will complement PLI to measure and monitor poverty from multidimensional perspectives. This measurement can reflect both multidimensional dissemination incidents (the number of inhabitants experiencing various aspects of life in certain populations) and intensity (how many limitations of the measurements are experienced on average at a time).

The measurement and study of multidimensional poverty provide insight into the susceptibility of individuals and families to various risk factors. This includes the COVID-19 pandemic, which constitutes health, humanitarian, and socioeconomic disaster. This measurement identifies a subset of the population that is more vulnerable to economic losses or, rather, a vulnerability in its various forms and manifestations. Individuals and businesses are unavoidably vulnerable to what economists refer to as “shocks” or unfavorable occurrences that have the potential to produce significant reductions in living standards. People in situations of vulnerability and marginalization are the main victims [18].

According to [19], the impoverished find it difficult to comply with restrictive measures such as social isolation or lockdown. Furthermore, the history of pandemics such as SARS and Ebola has demonstrated that economic poverty plays a significant role in disease transmission [20]. Thus, poverty may increase the chance of contracting COVID-19, just as infection increases the probability of sliding into poverty [21]. Aside from these monetary-based conclusions, multidimensional measurements can give more precise information on the poor’s incapacity to monitor health measures or their degree of vulnerability to a contagious disease such as COVID-19. People who are impoverished on several levels are deprived of actual possibilities or capacities [9].

4. Policy Recommendation

From the point of view of researchers and economists, it is time for the Malaysian government to hand over the reduction of poverty to members of the community and industry experts in various fields. After 64 years of independence, in 2021 the community’s direct poverty management method meets a conflict of interest, as politicians are also resource holders in distributing poverty aid. The poor are seen as the ‘Subject of Content’ and there is an opportunity for them to be prosecuted merely to meet the demands of social media and mainstream media. Assistance often fails to completely help the needy communities. Researchers suggest that the National Leader is sincere in managing the poverty of the community from the grassroots level, but they need to be involved indirectly and simply become moderators or whistleblowers in managing poverty. Leaders need to find a ‘Key Person’ or ‘Key Organization’ in every field that has the best Track Record and is open to all, with clear terms and goals in meeting the MPI dimensions mentioned above.

This idea is based on certain principles. The first is the principle of Maslow’s requirement, where people who have succeeded in a field will need to serve and give back to the community. For example, many businesspeople become philanthropists and set up their own community bodies and Corporate Social Responsibility (CSR) campaigns. Therefore, leaders need to offer platforms, such as assigning local areas with high poverty rates to these businessmen who might offer employment opportunities (earnings dimension) or educational scholarship assistance (education dimension), for example, and offering tax relief, adopting the village on behalf of these philanthropists. This and other initiatives can improve the level of satisfaction and requirements, as in Maslow’s theory of needs.

The second principle is that of effectiveness and specialization. ‘Key Persons’ or ‘Key Organizations’ appointed are those with expertise and specialization, which is outcome-based, and who understand the needs of the community in their field. When the poverty management campaign is implemented by its members, the effectiveness of managing poverty can be increased from the grassroots. The privatization policy of the 1980s has made significant differences in several institutions/organizations after they were privatized, making statutory bodies more efficient and functioning more effectively than before.

Funds that are supposed to be given directly to the poverty program can be saved and used for the purpose of development expenditure and other national management schemes. However, all the selection processes for the ‘Key Person’ or ‘Key Organization’ should be transparent and audited according to the objectives and evaluations set annually. Requirements and Feedback Community members should also be considered in ensuring that the management process can be improved in the future.

In the above MPI index, there are four dimensions: Education, Living Standards, Health, and Income. If we take education, for example, and the Key Organization is Telekom Malaysia, offering an internet plan for a village area in the interior of the Sabah state, such as during the COVID-19 Pandemic, not only improves the quality of online education for the students but also reduces future poverty rates. Not only that but, in the face of the pandemic challenges, there was a belief that online education can be implemented. Therefore, the government should implement Education for Everyone. University entry policy should be increased by 100%, because the online mode does not require a large physical infrastructure. Some education can be implemented online and can be carried out with the involvement of community members or expert organizations that are made into ‘Key Persons’ or ‘Key Organizations’, meeting the needs of the education dimension.

This proposal can also reduce the “Menu Costs” in the management of community poverty. This is because every time a leader changes, the poverty campaign will also change according to the manifesto or the campaign of the politician. The issue of poverty should be the most important issue and should be governed by a capable person with no conflict of interest and with continuously implemented objectives, processes, and dimensions that have been developed in eradicating poverty from the bottom, directly empowering the needs and interests of the ‘Key Person’ or ‘Key Organization’ in releasing their contribution to the community in the field in which they are involved. Community members should also enjoy necessary assistance without any suspension according to the influence of the party or politician.

5. Conclusions

This paper has discussed two types of poverty measurement, unidimensional and multidimensional, based on previous studies. The discussion has also considered the basic concept of measurement and the means of calculating both measurements. In addition, this paper has discussed in detail the measurement of poverty in Malaysia used since the 1970s in terms of the concept, formation, and calculation of the poverty line income (PLI). Currently, attention to the B40 issue that has become the focus in Malaysia has led to the introduction of the multidimensional poverty index (MPI) via RMK-11. The use of this MPI should ensure that all relevant elements and quality of life are accounted for as an additional measurement of income, which is relevant to the current COVID-19 pandemic.

Policies are recommended in this study, and it is suggested that members of the community and industry experts are involved in the poverty reduction program and that this is aligned with Maslow’s requirements. This study also recommends that the key person selection policy must be transparent and audited annually in accordance with the objectives and evaluations set forth. Overall, this research can help to plan and orient policy solutions from a multidimensional approach, integrating health, social and economic priorities. Poverty reduction involves a variety of techniques, all of which are focused on improving not only income, but also non-monetary factors such as education, health and living standards.