Trends of Household Income Disparity in Hong Kong Executive Summary Income disparity is one of the major concerns of the society. A very wide income disparity may lead to social instability. The Bauhinia Foundation Research Centre (the Centre) places great emphasis on the social and economic environment of Hong Kong, and seeks to analyse the key factors and conditions that would affect Hong Kong s long-term competitiveness and socioeconomic well-being. Through examining the changes in household income disparity, the Centre intends to promote public understanding of household income distribution in Hong Kong, provide reference for the government to formulate future policy, as well as to enhance social harmony and maintain Hong Kong s competitiveness in the long run. Study Objectives 2. The objectives of this study are to examine the changes in the household income distribution in Hong Kong between 1996 and 2016 and analyse the factors contributing to such changes. Research Methodology 3. The study adopted a quantitative analysis approach. Hong Kong Population Census and By-census provided by the Census and Statistics Department were used to analyse the changes in the household income distribution in Hong Kong from 1996 to 2016 and the factors contributing to the changes. The study focused on evaluating post-tax post-social transfer distribution of household income (excluding foreign domestic helpers). Therefore, unless otherwise specified, all the discussion on income mentioned in this study refers to the original monthly household income (at constant (June 2016) prices). Key Findings Household income disparity in Hong Kong widened between 1996 and 2016 4. In general, the findings revealed that the Gini Coefficient (GC), which measures income disparity, continued to rise between 1996 and 2016. The original household income GC increased by 0.021 during the period, indicating that the overall household income gap widened over the years, but the pace slowed down gradually (increased by 0.008 from 2001 to 2006, by 0.004 from 2006 to 2011 and by 0.002 from 2011 to 2016). In addition, the posttax post-social transfer household income GC showed an increase of only 0.007 from 1996 to 2016, indicating that the provision of taxation and social benefits helped relieve the impact of the widening gap between the rich and the poor. 1
5. An alternative way of looking at widening household income disparity is to compare the monthly household income at different percentiles with the income distribution, in particular ratio changes of high-income and lowincome households. As observed, percentile ratios increased from 1996 to 2016. Taking the income gap near both ends of the income distribution as an example, the household income at the 95 th percentile (P95) in 1996 was 25.5 times more than that of the fifth percentile (P5). The ratio rose by 72.2% or 43.9 times two decades later. Similarly, the ratios between the 90 th percentile (P90) and the tenth percentile (P10), between the 80 th percentile (P80) and the 20 th percentile (P20), as well as between the 75 th percentile (P75) and the 25 th percentile (P25) all witnessed varying degrees of increase. In addition, by comparing the different percentiles of household income between 1996 and 2016, it is noted that the lower the percentile of the household income, the slower the rate of income growth (or even recording negative growth). 6. By analysing the above comparisons on GC at different intervals between 1996 and 2016, the changes in the income ratios among different percentile households and their income variations, the study found that even the income gap in Hong Kong continued to widen from 2011 to 2016, the pace had slowed down. Income disparity and changes in household structure are closely related 7. Household income is closely related to the composition of the household (including household size and the number of working members). Generally speaking, fewer household or working members may result in lower household income. Therefore, the changes in household structure may affect the household income disparity. On the whole, the average household size of Hong Kong shrank in recent years. It dropped from 3.2 persons in 1996 to 2.7 persons in 2016. By analysing the decile group (all households were ranked by income and divided into 10 groups, each group contains the same number of households, with the first decile group being the 10% of households earning the least, the second decile group being the next 10%, and so on), it is shown that the low-income decile groups witnessed a more significant decline in average household size. Similarly, the average household size dropped more than the overall figure (0.5 person) among the middle-income and low-income decile groups (except the lowest decile group). 8. Ageing population may also contribute to changes in household income disparity. As elderly are mainly retirees with no employment income, the total household income may decline if the household consists of a larger proportion of retired elderly. It is noted that the higher income groups have a lesser rate of increase for household members aged 65 or above, while the 2
three lowest income groups reveal a higher overall increase (5.8%), indicating that the lower-income groups have a larger percentage of growing elderly population. 9. In summary, trends in household income disparity were affected by changes in household structure. The drop in the average household size and the ageing population led to an increasing number of small households (such as one-person or two-person households) with lower labour force participation rate between 1996 and 2016. Such households were mainly in the bottom deciles, resulting in a widening income gap during the period. Although the household income disparity was broadly consistent with the changes in the household size pattern, household income gap was widening at a slower pace between 2011 and 2016, yet, the phenomenon is affected by various factors and the drop could not be explained merely by the aforesaid factors. Economic growth and Statutory Minimum Wage (SMW) helped slow down the pace of widening income gap 10. Factors affecting the changes in income disparity could be complicated such as by demographic, social and economic changes. The income gap continued to rise between 1996 and 2011 when Hong Kong was experiencing economic ups and downs. However, the pace started to slow down between 2011 and 2016. This could be explained by the steady economic growth in Hong Kong during that period, and the implementation of the minimum wage policy in May 2011. The steady economic growth warranted people to sustain a stable income, or even acquire a higher income in some cases. The SMW, on the other hand, provided basic income protection for the low-income earners, which helped narrow the gap between high and low income groups. As a result, apart from considering the challenges of ageing population and the drop in household size, it is also important to analyse the changes within different periods, or even the policies implemented during those periods, such as how the economic structural changes and related labour and welfare policy initiatives could have an impact on income disparity. Conclusion 11. The study found that the household income disparity in Hong Kong widened over the past two decades (1996 to 2016), yet the gap was widening at a slower pace in the last five years (2011 to 2016). A drop in household size, coupled with an increasingly ageing population, could be reasons behind such household income disparity. The most significant impact lies in the lowincome household groups, where the decrease in household members and the increase in the proportion of people aged 65 or above are the key factors. Generally speaking, the amount of household income is closely related to the 3
number of household working members. For example, if the number of working members in the low-income households increases, the overall income of those households will increase accordingly. Harnessing the potential workforce of the young-old age group; strengthening promotion of optional retirement 12. Based on the above analysis, with a view to slowing down the pace of the widening household income gap, it is necessary for the government to timely review whether sufficient welfare measures are in place to assist lowincome households; to better utilise the potential workforce of the young-old group, allowing the mature job-seekers to stay in or re-enter the labour market. The Centre has been emphasising that the optional retirement could be a means to address the challenges posed by the ageing workforce in Hong Kong. To promote evidence-based policy planning, the government should collect substantive information on the current retirement practices being carried out by different enterprises and institutions in Hong Kong. Specifically, the government should work out a package of strategies, such as providing tax benefits or cash grants as incentives to encourage the private sector and non-government organisations (NGOs) to provide optional retirement arrangements for employees who are of retiring age but willing to work continuously. This not only could help companies and institutions retain valuable know-how and skill sets, but also help keep a pool of competent young-old staying in their workplace and earning a life, thereby easing the impact of population ageing on the widening household income gap. Intensifying employment support measures; creating more employment opportunities for silver-haired group 13. The young-old may choose to retire early or be forced to leave the job market because of a lack of appropriate job skills and job opportunities. The government needs to strengthen employment support measures and create a more conducive environment and working culture for mature persons who intend to re-enter the job market. These include providing tailor-made retraining programmes, on-the-job training allowances, actively promoting friendly employment practices, and creating more employment opportunities for silver-haired group, which could help attract them to re-enter the labour market and extend the working life of the labour force. Stepping up efforts to facilitate the development of diversified industries; reviewing minimum wage policy in a timely manner 14. Finally, even though the pace of widening household income gap slowed down between 2011 and 2016, it has adversely affected the social harmony and stability and weakened the competitiveness of Hong Kong, and its implications are far-reaching. If Hong Kong s economy continues to grow, 4
it will help individuals secure a stable income, or even get an increase in salary. The SMW provides basic wage protection to low-income workers, which also helps slow down the pace of widening income gap between high- and lowincome groups. Therefore, the government should continuously drive economic growth, step up efforts to facilitate the development of diversified industries, explore emerging industries with growth potential and create more job opportunities to achieve sustainable development; review the minimum wage policy in a timely manner to ensure the employment of grass-roots workers and their income growth. We need a long-term planning pertaining to the demographic, social and economic policies to help tackle the problem of income disparity. All we need is to adopt an innovative approach through government-led efforts, combined with the strengths of private sector and NGOs, to form a multi-pronged partnership. 5