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Following is a question by the Hon Yeung Sum and a written reply by the Financial Secretary, Mr Henry Tang, in the Legislative Council today (March 28):
Question:
It has been reported that the summary results of the 2006 Population By-census released recently show that the domestic household income of Hong Kong is polarising, with income of many middle-class families decreasing and opportunities for low-income people and their children to move up the social ladder dwindling. In this connection, will the Government inform this Council:
(a) whether it has studied the reasons for the widening income gap and slackening pace of social mobility; if it has, of the details of the study;
(b) whether it has assessed if the above situation will persist or even deteriorate and the impact of such persisting or even deteriorating situation on the society and economy of Hong Kong; if an assessment has been made, of the results; and
(c) of the details of the measures taken by the authorities to narrow the gap in domestic household income and promote social mobility, including those for enhancing the mobility of children from low-income families?
Reply:
Madam President,
(a) A paper entitled "Analysis of Income Disparity in Hong Kong", which was submitted by the Administration to the Legislative Council Finance Committee in mid-March, has broadly elaborated on the main factors leading to the wider income gap in Hong Kong. The factors are set out briefly as follows:
Reduction in average household size and ageing population: The ongoing change in family structure towards small and nuclear families has led to a progressive decline in the average household size. Household size, in particular the number of working members, is a key factor in determining household income, and this factor affects the low-income households more. Further analysis indicates that the rapid increase in small households, particularly elderly households which comprise mostly retirees with no fixed salaries income, is a major factor contributing to the increase in low-income households.
Job upgrading and maturing of local workforce: In the face of challenges and opportunities brought about by globalisation and rapid economic development on the Mainland, Hong Kong has been continuously undergoing restructuring towards higher value-added activities so as to sustain its economic vitality and competitiveness. During this transformation and upgrading process, many high-income jobs are being created along with enhancement of the quality of the workforce. These developments have affected the income distribution in Hong Kong in the following ways:
* The income disparity between high-income and low-income jobs is widening.
* The proportion of high-income workers increases, and the income disparity among the high-income earners themselves has also increased.
* The income of low-income workers as a whole gradually decreases when they reach middle age, whereas the income of middle-aged workers with higher education level and salaries is likely to continue to increase. Thus, income disparity would tend to further widen with the ageing of the population.
Prolonged economic downturn: The economic downturn in Hong Kong during 1998 to 2003 is another factor contributing to the slowdown in employment earnings among low-income workers in recent years. With corporate downsizing and cost cutting, unemployment, underemployment and pay cuts were more common in this group than in the high-income group, thus leading to a widening of the income gap. As indicated by more recent statistics, there has been a notable upturn in employment income among low-income earners since mid-2003 alongside the strong economic rebound and increasing employment opportunities for the lower-skilled.
Regarding social mobility, Hong Kong has fair and open markets, thereby providing ample opportunities for income mobility among the workforce. As such, low-income groups can move up the earnings ladder over time through their own efforts and participation in economic activities. A study conducted by the University of Hong Kong last year (Remark 1) shows that in general earnings of the low-income workers are highly mobile. Specifically, some 42% of workers in the lowest 20% of the earnings distribution in 1996 were found to have moved up the earnings ladder in 2005.
(b) To a large extent, the future trends of income disparity and social mobility depend on the structural and cyclical changes in the economic and social factors involved. These factors, which are complicated and interwining, include demographic structure, household size, economic growth and restructuring, employment opportunities and pattern, wage rates, social welfare policies, and pace of technological advancement, etc. As there are a lot of uncertainties surrounding these factors, it is difficult to project the future changes in income disparity and social mobility, and assess their effects on the economy and the community at large.
To have a clearer analysis of the distribution of household income and related social and economic factors, the Census and Statistics Department (C&SD) is conducting an in-depth study on income disparity in Hong Kong, based on the more comprehensive data collected in the 2006 Population By-census. A Thematic Report on the subject is expected to be available by mid-2007.
(c) The Administration is committed to improving people's livelihood, in particular in addressing the needs of the low-income and the disadvantaged groups. The Administration has highly subsidised a wide range of public services, including education, public health care services and welfare services, which account for over half of our government expenditure. We also have an established public housing policy which subsidises low-income families which cannot afford private housing. Moreover, only around one-third of our working population is subject to salaries tax and the low-income earners are outside the tax net.
All these measures have a redistributive impact and reduce income disparity. Last year, C&SD conducted a Study on the Effect of Taxation and Social Benefits on Household Income Distribution. Among other things, it was found that the lowest two household income decile groups received around one-third of the imputed total selected social benefits and cash transfer, and their post-transfer income (after taking into account taxation and social benefits) increased substantially. C&SD is conducting a more in-depth analysis on how public policies impact on income distribution and the results will be included in the Thematic Report for release in mid-2007.
The Administration has also been proactively implementing a series of measures in education, training and capacity enhancement so as to encourage upward social mobility, including enhancing the mobility of children from low-income families. We will continue to invest heavily in education and various training and retraining programmes, and to ensure access by those who need support. As the economy continues to improve, we have witnessed extensive improvements in the labour market in recent years. We will continue to adopt a multi-pronged approach to stimulate economic growth and to create employment opportunities.
Remark 1: James P. Vere, "Special Topic Enquiry on Earnings Mobility", Hong Kong Institute of Economics and Business Strategy, The University of Hong Kong, September 2006. This paper also serves as an annex of the information paper titled "Study on Earnings Mobility" (Ref. CoP23/2006, http://www.cop.gov.hk/eng/pdf/CoP%20Paper%2023-2006(eng).pdf) for the meeting of Commission on Poverty on November 20, 2006.
Ends/Wednesday, March 28, 2007
Issued at HKT 11:52
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