restricted access 16: Education for Equality and Growth
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16 Education for Equality and Growth Income inequality in Hong Kong has risen over the last three decades, as it has in the US, the UK, and many other advanced economies. The question is, why? Understanding the causes and implications of this is important because it can show us what needs to be done to reduce inequality and alleviate poverty in our society. Income inequality can be studied from three different perspectives. First is the normative perspective. Many thinkers believe that the distribution of income should not be too unequal in a just society. The branch of economics that studies this subject is known as welfare economics and it approaches the issue in several different ways. The basic unit of analysis is the household, which is considered to be the appropriate recipient of public policy benefits aimed to reduce economic inequality. One approach is to study the distribution of household income net of transfers, taxes, and other compulsory contributions. Another is to look at equivalence scales for comparing households of different sizes and with different combinations of individuals (such as children versus adults). A third consideration is the shadow income of members who are not working in the labor market but contribute to domestic household work, such as taking care of young children. The normative perspective will not be discussed in this essay. The government had conducted many studies on household income inequality from the normative perspective both recently and in the past. Inequality Gap Doubles One simple measure of income inequality is the ratio of high-income to lowincome households—the share of income of the top 90th percentile compared to that of the bottom 10th percentile. This ratio increased in Hong Kong from 158 Contradictions in Quality of Life Issues 7.6 to 9.3 in the period 1981–1996; and then more substantially from 9.3 to 15.4 over the period 1996–2011 (see Table 16.1). In other words, household income inequality measured as the gap between high- and low-income families doubled, from 7.6 to 15.4 times, over the past 30 years. While these figures appear to be substantial, they are gross income figures that have yet to be adjusted. Changes in household income distribution reflect a combination of many factors including changes in the composition and size of households, taxes and transfers. Until these have been taken into account, the figures tell us very little about the distribution of household welfare. A study by the Census and Statistics Department, Thematic Report: Household Income Distribution in Hong Kong (2007), is a good step toward this direction. It shows that inequality as measured by the Gini Coefficient did not change very much between 1996 and 2006 after making a variety of necessary adjustments to gross reported income. This result reflects some obvious attempt by the government to reduce economic inequality through a variety of policy measures. Table 16.1 Estimates of income inequality for households and working individuals, 1981–2011 1981 1986 1991 1996 2001 2006 2011 Household Income P10 (HK$) 1,026 2,024 3,424 5,609 4,900 4,282 4,452 P90 (HK$) 7,843 14,158 28,472 52,098 57,378 55,997 68,687 Ratio (P90/P10) 7.6 7.0 8.3 9.3 11.7 13.1 15.4 Gini Coefficient Crude Estimates 0.451 0.453 0.476 0.518 0.525 0.533 0.544 Working Population – Individual Income P10 (HK$) 684 1,165 2,308 4,017 3,906 3,649 3,725 P90 (HK$) 3,642 6,318 14,010 25,996 32,444 31,778 38,524 Ratio (P90/P10) 5.3 5.4 6.1 6.5 8.3 8.7 10.3 Gini Coefficient Crude Estimates 0.438 0.439 0.437 0.461 0.483 0.500 0.509 Education for Equality and Growth 159 The second perspective in studying income inequality is the revenue perspective . Tax revenue data from North America and Europe have shown that household or individual income inequality has increased over the past three decades as the top 1% or top 0.1% of the population has gained a rising share of income. This is the kind of inequality that supporters of the Occupy Wall Street movement in 2011 are talking about. Income at this level is dominated primarily by non-human capital income and sometimes by tax treatments of income, so it concerns not only the economic aspects of inequality, but...