The Bauhinia Foundation Research Centre shares research reports, occasional papers and weekly analyses on topical matters and current affairs in a timely manner. Want to stay connected with us? Please enter your email address.
The Bauhinia Foundation Research Centre (the Centre) today released an occasional paper ‘Trends of Household Income Disparity in Hong Kong’, which examines the changes in household income disparity between 1996 and 2016 and analyses factors contributing to the changes. The study reveals that household income gap continued to widen from 1996 to 2016, but the pace had slowed down from 2011 to 2016, particularly affecting lower-income groups with a smaller household size and a higher proportion of household members aged 65 or above.
Findings show that the Gini Coefficient (GC) increased by 0.021 from 1996 to 2016, reflecting a rising household income disparity. The GC based on post-tax post-social transfer monthly household income increased very mildly by 0.007 during the same period, while the 2016 figure was even 0.002 lower if compared with 2011. In sum, the Government’s taxes and social benefits helped mitigate income disparity to some extent.
Apart from the GC, the Centre also compares the ratio changes of monthly household income at different percentiles with the income distribution, aiming to measure the differences between higher-income and lower-income households.
The study finds that such ratios had increased from 1996 to 2016, indicating a widening income gap. For instance, the household income of the 95th percentile in 1996 was 25.5 times more than that of the fifth percentile, and the ratio rose by 43.9 times in 20 years. The comparisons of the income changes in various percentiles of household income during the same period also reveal that the lower the household income, the more gentle the income variations. Some even recorded negative numbers.
On the whole, the average household size of Hong Kong had been declining – from 3.2 persons in 1996 to 2.7 persons in 2016 – marking a drop of 0.5 person. The study also points out that low-income decile groups witnessed a more obvious decline in average household size. Besides, the drop rate of the number of household members among the middle-income and low-income decile groups (except the lowest decile group) was higher than the overall figure.
Household income disparity is affected not only by the household size, but also the acceleration of the city’s population ageing. During 1996-2016, the proportion of elderly persons aged 65 or above in the total population rose 5.8 percentage points, and shifted towards the lower-income groups as the growth rate among the bottom three income groups was higher than the overall figure. With elderly population leaning towards the lower-income groups, it leads to a drop in the labour force participation rate, thus facing a dilemma of low or no income.
In short, the Centre believes that if the Government is determined to mitigate household income disparity in Hong Kong, it is necessary to review whether existing welfare measures can relieve hardship experienced by the low-income households. It should also exert more efforts to harness the potential workforce of young-old persons with diverse support measures, enabling them to re-enter the workforce and prolong their working lives. In view of the above considerations, two major suggestions are proposed:-
The Centre has long been advocating the importance of optional retirement, which is one of the feasible solutions to cope with population ageing in Hong Kong. The Government should strengthen efforts to review progress in implementing optional retirement among different companies and organisations, and to pursue a long-term policy planning.
For instance, the Government can provide tax benefits or cash grants as incentives to encourage the private sector and non-government organisations (NGOs) to provide optional retirement arrangements for retiring employees to extend their careers. Experienced staff can therefore be retained, facilitating capable young-old persons to earn a regular income by keeping them in their workplace, which will in turn reduce the impacts of ageing population on the widening of household income disparity.
Some young-old persons may choose to retire early or be forced to quit the job market, if there are no suitable job opportunities that match their job skills and experiences. In light of this, the Centre suggests the Government creating a more conducive environment and working culture and providing young-old persons who intend to prolong their working life with employment support measures, such as tailor-made retraining programmes and on-the-job training allowances. The Centre believes that these incentives can attract more young-old members to re-enter the labour market, extending the working life of the labour force.
It is noteworthy that household income gap was widening at a slower pace between 2011 and 2016. This may be associated with the implementation of the Statutory Minimum Wage (SMW) policy in May 2011. The SMW provides basic wage protection to low-income workers, which also helps slow down the pace of widening income gap between high- and low-income groups. To drive economic growth and achieve sustainable development, the Centre suggests the Government promoting the development of diversified industries, identifying high value-added new industries with growth potential and creating more job opportunities in full swing. The Government should also review the minimum wage policy in a timely manner, enabling the employment of grass-roots workers and their income growth.
A very wide income disparity may lead to social instability. Policymakers should address the adverse and far-reaching impacts of the growing income disparity, or else it will undermine Hong Kong’s long-term competitiveness. Aiming to reduce the city’s income disparity, the Centre urges the Government to take the lead in forming a multi-pronged partnership with the private sector and NGOs, capitalising on their innovative power that can contribute to a long-term planning pertaining to the demographic, social and economic policies.
The full version of the Occasional Paper is in Chinese only. For more information in English, please refer to the Executive Summary.