Regional Income Differences and the Definition of Income: The Case of Malaysia

Data from the Malaysian Family Life Survey are used to examine the sensitivity of urban/rural income differentials to the definition and measurement of income. Measured income differentials vary with the extent to which nonmarket activities are included in the scope of income, how the distribution of income is summarized, and whether one adjusts for differences in hours of work, household size and composition, ethnic composition, and other sociodemographic characteristics. For example, depending on the measure chosen, estimates of the amount by which urban income exceeds rural income in Malaysia range from 9 percent to 141 percent.