Census and Statistics Department announces results of the study on household income distribution in Hong Kong
The Census and Statistics Department (C&SD) released the results of the study on the household income distribution in Hong Kong today (June 18) in the Thematic Report on Household Income Distribution in Hong Kong. The study was undertaken by making use of data from the 2011 Population Census and earlier rounds of population census/by-census. The study also highlighted the redistribution impact of government policies through taxation and social benefits on household income.
According to results of the study on the household income distribution in Hong Kong, the Gini Coefficient (based on post-tax post-social transfer monthly household income) of Hong Kong in 2011 was 0.475, unchanged as compared to the level in 2006 but slightly higher than the 0.470 in 2001. Focusing only on economically active households2 which account for the main source of employment income in Hong Kong, the corresponding Gini Coefficient in 2011 was 0.430, slightly lower than the 0.436 in both 2006 and 2001.
As government policies through taxation and social benefits have an overall impact on income redistribution, the compilation of Gini Coefficient based on post-tax post-social transfer monthly household income (i.e. household income taking into account the effects of taxation and social benefits) should provide a more meaningful measure of the overall situation of income disparity in Hong Kong.
Comparing the Gini Coefficient based on post-tax post-social transfer household income with that based on original household income provides a measure of the magnitude and effectiveness of government’s policy in mitigating income disparity in Hong Kong. The magnitude of reduction in Gini Coefficient in 2011 was 0.062, reflecting that income redistribution from the upper end of the income distribution to the lower end through taxation and the provision of social benefits helped narrow income disparity. Such effect in 2001 and 2006 were estimated to be 0.055 and 0.058 respectively. The greater impact of redistributive policies for 2011 as compared to 2001 and 2006 is also in line with the government’s increasing expenditure on welfare, education and healthcare over time.
Another important factor underlying the rise in income disparity over time is the socio-economic and demographic changes in Hong Kong. Because of population ageing, the number of economically inactive households3 has risen markedly by 48.3% between 2001 and 2011, and in proportional terms, from 13.9% in 2001 to 17.9% in 2011. 43.6% of these households in 2011 were elderly households with all members aged 65 and over. These households mainly consisted of retirees with no employment income, and naturally had a significantly lower median monthly income (excluding foreign domestic helpers) of $4,320 when compared to all domestic households in Hong Kong ($20,200).
As such, the increasing prominence of economically inactive households would naturally widen the overall income disparity in Hong Kong. To yield a more meaningful analysis, we have also compiled Gini Coefficients for economically active households. In 2011, the Gini Coefficient (based on post-tax post-social transfer household income) for the economically active households was 0.430, improved from 0.436 in 2006 and also much lower than the 0.475 for all domestic households.
Moreover, there has been an increase in the number and proportion of small-sized households over time. The average household size decreased from 3.1 in 2001 to 3.0 in 2006 and 2.9 in 2011. As household income is closely related to household size, the increasing prominence of small households in the population would also affect the overall trend in the income level as well as its distribution.
As such, the Gini Coefficient based on post-tax post-social transfer per capita household income could shed some light on a more genuine income disparity situation after netting out the demographic change of household size. In 2011, such estimates for all households and economically active households were 0.431 and 0.413 respectively.
If the effect of the government’s one-off relief measures implemented in 2011 is also taken into account, the Gini Coefficients will be further lowered to 0.414 and 0.399 respectively.
Employment and Household Income Distribution
The study also revealed that employment income constituted the major source of income, as 85.7% of the domestic household income was attributable to employment income in 2011, largely the same as that for 2006. The median monthly income from main employment of the working population (excluding foreign domestic helpers) was $12,000 in 2011, up visibly by 20% from $10,000 in 2006. Taking into account the price changes, the increase was 3.5% in real terms.
Further analysed by decile group, the median employment income of the first, second and third deciles (the lowest 30% of working population with lower employment earnings, excluding foreign domestic helpers) were all higher by 19.3%, 26.3% and 14.3% respectively in 2011 as compared to 2006. In real terms, the first and second decile groups were still up by 3.0% and 8.9%, while the third decile group was slightly lower by 1.4% over the same period. Yet, it should be mindful that part-time workers with much fewer hours of work could to a certain extent affect the monthly employment income distribution, particularly in the lower income brackets.
As for the trend of household income, the median monthly household income (excluding foreign domestic helpers) increased by 18.1%, from $17,100 in 2006 to $20,200 in 2011. Such comparison of household income is however significantly affected by demographic changes and changes in the composition of households over this period, especially the secular trend of population ageing leading to a surge in economically inactive households with very low or even no household income.
A more meaningful analysis is to focus on the income changes of economically active households. Their median monthly household income (excluding foreign domestic helpers) increased more appreciably by 22.5%, from $20,000 in 2006 to $24,500 in 2011. In real terms, the corresponding increase was 5.7%. Analysed by decile group, all decile groups likewise exhibited double-digit increases in median household income, and most of them continued to show visible growth in real terms after discounting for inflation.
A government spokesman noted that the Gini Coefficient based on post-tax post-social transfer household income for all households had remained stable in 2011 when compared to 2006, while the figure for economically active households actually fell from 0.436 in 2006 to 0.430 in 2011. The spokesman commented that with the robust economic and labour market conditions, in addition to the implementation of the statutory minimum wage in May 2011, the employment and income situations of those receiving lower income had improved quite notably. The various government policies in the areas of housing, healthcare, education and social welfare, had helped further increase the disposable income and hence improved the livelihood of the grassroots workers, thereby mitigating the rising trend in income disparity in Hong Kong.
The spokesman remarked that taxation and social benefits have played a significant role in income redistribution. Together they have reduced Hong Kong’s Gini Coefficient of all households by 0.062 in 2011, larger than that in 2006 (0.058) and 2001 (0.055). The greater impact seen in 2011 reflects the increased strength and effectiveness of government’s policies in narrowing income disparity over time.
Discounting the impact of demographic changes such as the reducing household size, the corresponding Gini Coefficient for economically active households was lower, at 0.413 in 2011. If the effect of one-off relief measures provided by the government in 2011 was also taken into account, the Gini Coefficient would fall further to 0.399.
Overall speaking, Hong Kong’s Gini Coefficients are comparable to those of other city-state economies or metropolitan cities (such as New York and Washington DC) and lower than that of Singapore, using similar compilation methods.
The spokesman further commented that there was however no room for complacency. The government would continue its efforts to assist the grassroots and to closely monitor their situation. As sustained economic growth was the key to raising the overall standard of living, the government would continue to improve the business environment and promote economic growth to create job opportunities; invest in education, training and retraining to enhance workers’ competitiveness and upward mobility, as well as consider suitable taxation and social benefits.
A table on the various Gini Coefficients for 2001, 2006 and 2011 is attached.
The report “Thematic Report on Household Income Distribution in Hong Kong” is now available for free download at the Statistical Bookstore of C&SD (http://www.censtatd.gov.hk/hkstat/sub/sp170.jsp?productCode=B1120057).
2. Economically active households refer to domestic households with at least one member (excluding foreign domestic helpers) being economically active.
3. Economically inactive households refer to domestic households with all members (excluding foreign domestic helpers) being economically inactive (e.g. home-makers, retired persons and those below the age of 15).