The Gini Coefficient 1 is the most common indicator used to measure income disparity between the rich and the poor. According to the household income distribution data obtained from Population Censuses/By-censuses, the Gini Coefficient for Hong Kong has been on the upward trend in the past three decades -
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1971 |
1976 |
1981 |
1986 |
1991 |
1996 |
2001 |
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|
|
|
|
|
|
|
Gini Coefficient |
0.430 |
0.429 |
0.451 |
0.453 |
0.476 |
0.518 |
0.525 |
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|
|
|
|
|
|
|
% change |
- |
-0.2 |
+5.1% |
+0.4% |
+5.1% |
+8.8% |
+1.4% |
"Income Distribution of Hong Kong and the Gini Coefficient" by the Government Economist
Observations from the Gini Coefficient
(a) Economic growth and rise in overall income
While an increase in the Gini Coefficient indicates rising income disparity, it does not necessarily indicate worsening of poverty situation as both the rich and the poor may experience income increase simultaneously, albeit at different rates. In 2001, the median monthly employment earnings of employed persons at the lowest two decile groups were two to three times higher in money terms than those in 1986 2. Taking into account the effect of inflation, the corresponding increases still ranged between 28-78% in real terms. Over this period, the overall median monthly employment earnings increased by 257% in money terms or 56% in real terms.
(b) Structural transformation of the economy
The growing disparity of income also reflects the transformation of Hong Kong into a high value-added financial and business services hub in the region. One would note the increase of the Gini Coefficient was more drastic in the 1990s during the time of rapid structural change of Hong Kong’s economy Between 1991 and 2001, the number of manufacturing workers went down by 7.6% per annum, accelerated from the 4.8% fall per annum during 1986-1991. Over the same periods, the growth in number of workers engaged in the financing, insurance, real estate and business services sector picked up from 7.2% to 7.6% per annum.
(c) Impact of tax and other benefits
The Gini Coefficient of Hong Kong is calculated based on gross household income without any adjustment for tax and social benefits. For instance, after incorporating salary tax adjustment the 2001 figure (0.525) would be reduced by 7.2% to 0.487. The figure would be further reduced by 14.3% to 0.450 if adjustments were made also for public housing benefits and education benefits 3.
(d) International comparison
5. One needs to avoid being over-simplistic in drawing international comparison of the Gini Coefficients given the different stages of development of different places. For instance, the Gini Coefficients of countries with great differences in economic development, and income level and distribution, such as Egypt, Switzerland, Japan, South Korea and India, can be similar. The World Bank has also pointed out that Gini Coefficient is not strictly comparable across places because the underlying household surveys differ in terms of method and type of data collected 4. For instance, the Gini Coefficients of some countries cited are based on disposable income taking into account the impact of taxation and other public benefits.
(e) Hong Kong as a Global City
6. Some have also argued that for a place like Hong Kong which is becoming a global city like London and New York, the occupational structure is polarized with professionals, managers in producer services at one end, and low-skilled service workers at the other end 5. Hence it is not appropriate to compare the Gini Coefficient of Hong Kong with national economies with a much greater preponderance of agricultural and manufacturing activities at narrower income differentials.
Commission Secretariat
(with input from Government Economist)
January 2006
1 The Gini Coefficient is an index measuring the disparity in household income. The Gini Coefficient takes the value between zero and one. The larger the value of the Gini Coefficient, the greater the disparity between the rich and the poor.
2 This refers the monthly employment earnings of all employed persons without excluding foreign domestic helpers, as the latter had not been separately identified for data in the early years.
3 Distribution of Household Income in Hong Kong (May 2002), Census and Statistics Department in collaboration with Economic Analysis Division
4 The World Bank (2004). 2004 World Development Indicators. Washington DC.
5 Sassen (2001). Chiu and Lui (2004).
CoP Paper 22/2006
Study on the Effect of Taxation and Social Benefits on Household Income Distribution
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