Economic Growth and Income Inequality in Hong Kong - World Scientific

SIMON X.B. ZHAO AND L. ZHANG

Economic Growth and Income Inequality in Hong Kong: Trends and Explanations Simon X. B. ZHAO and L. ZHANG

In terms of GDP per capita, Hong Kong is considered a developed society. However, its income inequality has long been relatively high. This paper investigates why prolonged income inequality in Hong Kong has persisted despite rapid economic growth. The authors argue that while the impact of economic restructuring on the less-skilled labour market and the redistributive role of social policies on household income are two major forces that have contributed to a rapid rise of GDP per capita, the same two factors have served to exacerbate income inequality. In the absence of appropriate government policies, the laissez-faire approach to economic development has not equalised income distribution.

There are contrasting views concerning the relationship

between economic development and income equality. Some believe that income inequality tends to increase during the early stages of economic growth, then ABOUT THE AUTHORS

Simon Xiaobin Zhao ([email protected]) is Associate Professor in the Department of Geography, and Director of the International Centre for China Development Studies at the University of Hong Kong. He wrote his PhD on China’s regional systemic reform and development at the University of Manchester. His main research interests are urban and regional planning, economic development and spatial transformation, China’s WTO accession and geography of trade and finance. Li Zhang ([email protected]) is Assistant Professor in the Department of Geography and Resource Management at the Chinese University of Hong Kong. He received his PhD in geography from the University of Washington. His main research areas are migration and urban and regional development.

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© CHINA: AN INTERNATIONAL JOURNAL 3, 1 (MAR. 2005): 74 – 103

ECONOMIC GROWTH AND INCOME INEQUALITY IN HONG KONG

levels off and finally decreases during later stages. They believe that economic growth will eventually bring benefits to all, therefore alleviating income inequality. Others argue that economic growth does not necessarily equalise income distribution because under-class groups tend to receive only a small portion of the economic gains being made. Hong Kong’s case seems to support the view that economic growth may not automatically bring equal benefits to all those who contribute to economic growth. In recent decades Hong Kong has enjoyed fast economic growth, but at the same time, inequality has risen sharply in the Territory. The several measures used to examine income inequality have been quite high for some time. Thus, determining the causes of this worsening income gap are now of wide concern among policy-makers.

Economic Growth and the Distribution of Income Many scholars have studied the historical relationship between economic growth measured by the rate of GDP and income inequality. Two relatively old views still dominate the development literature. The first, known as the Kuznets hypothesis, predicts an inverted U-shaped relationship between income level and income inequality. In general, the growth of income level first leads to an increase and then, beyond some point to a decrease in income inequality.1 The second view, the so-called Okun proposition, asserts that there is a “great tradeoff ” between equality and efficiency and hence policy interventions intended to reduce inequality have a high cost in terms of a lower average income.2 The two views are seen to argue against public policies intended to create a less unequal society, since the Kuznets view indicates that in the long-term, policy interventions are unnecessary and the Okun view indicates that in the short-run they are harmful.3 The Kuznets hypothesis has stimulated many empirical re-evaluations of a close relationship between per capita income and the degree of inequality. While most of the earlier work agreed that the empirical tests were convincing enough 1

2

3

Simon Kuznets, “Economic Growth and Income Inequality”, American Economic Review 45 (1954): 1–28. Arthur M. Okun, Equality and Efficiency: The Big Tradeoff (Washington: Brookings Institute, 1975). Keith Griffin and Amy Ickowitz, The Distribution of Wealth and the Pace of Development (Working Paper 3, United Nations Development Program, 1997).

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to support an inverted U-shaped relationship,4 recent econometric investigations tend to question and even reverse the validity of the Kuznets hypothesis.5 Another pattern of the growth-inequality relationship, the U-shaped relationship, has been discussed by Norman Cloutier apropos a country experiencing a structural change from being a manufacturing-based economy to a service-based economy.6 In this pattern, manufacturing growth initially causes average incomes to rise leading to a decline in inequality. Later, the shrinking of the Fordist-style manufacturing sector and the rise of the knowledge-based service sector differentiate labour forces by educational and skill levels and therefore cause an increase in inequality. The job market demands more professionals and skilled workers and compensates them relatively well. On the other hand, the job market offers few positions requiring lower skills. Manual workers tend to be marginalised and exploited. Inequality also exists at the regional and city levels. Researchers have devoted considerable effort into investigating whether or not changes in city size lead to changes in income inequality. Some argue that income inequality increases with city size.7 Others claim that city growth leads to decreased inequality.8 The methodological and data debates aside, contrasting arguments from different studies imply that the longitudinal relationship between income growth 4

5

6

7

8

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Felix Paukert, “Income Distribution at Different Levels of Development: A Survey of Evidence”, International Labor Review 108 (1973): 97–125; Montek S. Ahluwaliz, “Inequality, Poverty, and Development”, Journal of Development Economics 3 (1976): 307–42; Sherman Robinson, “A Note on the U-hypothesis”, American Economic Review 66 (1976): 437–40. Ashwanti Saith, “Development and Distribution: A Critique of the Cross-country Uhypothesis”, Journal of Development Economics 13 (1983): 367–80; Torsten Persson and Guido Tabellini, “Is Inequality Harmful for Growth?”, American Economic Review 84 (1994): 600–21; Alberto Alesina and Dani Rodrik, “Distributive Politics and Economic Growth”, Quarterly Journal of Economics 108 (1994): 486–90; G.R.G. Clarke, “More Evidence on Income Distribution and Growth”, Journal of Development Economics 47 (1995): 403–27. Norman Cloutier, “Metropolitan Income Inequality During the 1980s: The Impact of Urban Development, Industrial Mix, and Family Structure”, Journal of Regional Science 37 (1997): 459–78. James E. Long, David W. Rasmussen and Charles T. Haworth, “Income Inequality and City Size”, Review of Economics and Statistics 59 (1977): 244–6. Daniel B. Gubits, Income Inequality: On a City Level, [13 Jul. 2004].


and inequality is not as simple as existing studies show. An increase in the average income level does not necessarily reduce income inequality. While many scholars agree that increased inequality of income may harm the pace of development, current studies have focused on an understanding of the specific factors that affect changes in the distribution of income over time for individual countries. There are numerous explanations as to why inequality tends to persist and even worsen whilst the income level continuously improves. For a relatively developed economy, these explanations are almost always related to the impact of economic restructuring under globalisation on the structure of employment opportunities in two major ways.9 Firstly, the globalisation process signifies the transnationalisation of economic activities, i.e., the shifting of businesses and productions from local to global operations and the restructuring of the national economy. The underlying logic of this process is best explained by the valorisation and accumulation of capital. With the internationalisation of production, certain jobs, especially those requiring unskilled or semi-skilled labour, are relocated away from industrialised countries where production costs are usually higher.10 Because economic restructuring has made jobs more mobile and flexible, it is inevitable that the migration of jobs produces more negative effects on manual labour than on professional, technical and supervisory workers. Secondly, the globalisation process promotes economic liberalism. The Hong Kong Government has increasingly left the market to determine development, instituting neo-liberal or New Right economic ideologies. The key principles of neo-liberalism include the primacy of the market and profit, and the enhancement of competition, achieved by denationalisation of state-owned companies, privatisation of some state services and deregulation of the regulatory apparatus applied to business structure and practices. This means that the economic well-being of individuals is increasingly determined less by government than by the rapidly escalating interdependence of the world economy. Although one of the major repercussions of economic liberalism is to help create a “favourable business environment” which is necessary to cope with global market forces, this in turn generates controversial issues surrounding how economic growth might benefit everyone. 9

10

Peter Dicken, Global Shift: Transforming the Global Economy (London: Paul Chapman Publishing, 1998); Robert B. Potter, T. Binns, J. A. Elliott and D. Smith, Geographies of Development (Upper Saddle River, NJ: Prentice Hall, 1999). Brian J.L. Berry, Edgar C. Conkling and D. Michael Ray, The Global Economy in Transition (2nd edn.) (Upper Saddle River, NJ: Prentice Hall, 1997).

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Those using the political economy approach to study the growth-inequality relationship believe that inequality can have important consequences for growth because the degree of inequality in a society can affect, politically and economically, the willingness or ability of citizens to undertake measures that contribute to growth.11 Large income gaps can induce social unrest and reduce the percentage of the population that is willing to or can make investments to improve its own productivity, thus depressing economic growth. Alternatively, the reduction of inequality can encourage healthy economic expansion by acting as a powerful incentive to widespread public participation in the development process. To maintain sustainable growth, a government should reduce income inequality to a level acceptable to the society. The multiple effects of economic restructuring under globalisation provide the rationale for this study of inequality in Hong Kong. As one can see from the following analysis, the relocation of manufacturing operations, coupled with ineffective social policies for income redistribution have worsened inequality in Hong Kong. Although economic restructuring may be seen as positive in terms of economic efficiency and growth, it must not be overlooked that it has had largely negative impacts on the traditional labour markets and therefore inequality. Effective social policies are needed to play an active role in promoting a just redistribution of wealth.

Temporal Changes in the Level and Distribution of Household Income Hong Kong enjoyed impressive economic growth and high levels of income during the past few decades except following the Asian Financial Crisis in 1997 which brought about a severe recession. With GDP growth averaging 6.7 per cent annually in real terms, Hong Kong’s economy increased over 15 times in size over the last four decades (see Table 1). Per capita GDP increased over seven times in real terms, equivalent to an average annual growth rate of 4.8 per cent. In terms of per capita GDP, Hong Kong has been rated a developed society for some time. Economic success has produced profound effects on the level and distribution of household income. Households in Hong Kong were generally better off in 2001 than three decades ago. The median income for 1971 was HK$708, but by 2001 it had risen to HK$18,705 (see Figure 1). Discounting the increases in 11

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Michael P. Todaro, Economic Development (7th edn.) (Harlow: Addison Wesley Longman, 2000).


Table 1: Gross Domestic Product and Per Capita GDP at Constant (2000) Market Prices GDP

Year 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Per capita GDP

HK$ Million

% Change

HK$

% Change

86,954 114,846 142,737 147,658 169,808 198,520 246,100 252,663 328,134 397,041 478,012 519,839 574,710 719,606 797,957 874,130 990,831 1,085,764 1,189,966 1,169,474 1,294,306 1,361,036

NA 15.7 14.5 1.7 11.3 7.1 12.4 0.3 11.7 11.5 9.2 5.8 0.5 13.0 2.6 5.6 6.3 3.9 5.1 3.4 0.5 3.2

27,447 33,573 39,674 39,665 43,948 49,075 58,021 56,630 71,588 80,541 92,221 97,256 105,332 128,950 140,332 151,969 167,908 176,371 183,374 177,019 192,465 200,061

NA 11.8 11.5 –0.8 9.5 4.8 9.2 –1.6 10.1 5.6 6.7 4.2 –0.6 11.9 1.6 4.8 4.5 1.8 4.2 2.4 –0.4 3.0

Source: Census and Statistics Department, [2 Jul. 2004].

median income per month

Figure 1. Monthly Median Household Income, 1971 to 2001 (HK$ current prices)

20000 10000 0 1971

1976

1981

1986

1991

1996

2001


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consumer prices, the real median household income may have gone up as much as 240 per cent from 1971 to 2001. Simple addition of the successive set of figures in Table 2 shows that over the past three decades there was a considerable decline in the number of low-income households (those earning less than HK$200 in the 1970s and earning less than HK$4,000 since the 1980s) and a corresponding increase in the number of high-income households (those earning at least HK$4,500 in the 1970s and earning at least HK$60,000 since the 1980s). However, the increasing trend in household income does not necessarily indicate an equal income distribution among households. In spite of overall growth in household income, income distribution improved only between 1966 and 1971, as shown by the census data (see Table 3). The increase in the aggregate income share of low-income households and a corresponding decrease in the share of the richest represents a narrowing of income inequality at that time, but a notable deterioration of the aggregate distribution is apparent since the 1970s. The income share of the bottom 30 per cent of households went down continuously while the top 30 per cent began to enjoy an increase in their share of the total income (see Figures 2 and 3). From the 1980s, the top 20 per cent of households managed to account for over 50 per cent of the total income. A persistent decline in the income share of the bottom-income households together with an increase in the income share of the upper-income households clearly signifies a deterioration in the aggregate distribution of income in Hong Kong over the past 30 years and hence rising income inequality. The percentage change of income shares for different groups from 1971 to 2001, as given in the last column of Table 3, demonstrates that over the past 30 years the lower the income group, the greater the reduction of its share. By contrast, the higher the income group, the greater the increase in its share of the total wealth. The richest 10 per cent in 2001 possessed 41.2 per cent of total income while the poorest 10 per cent claimed less than 1 per cent (see Table 3). Such a pattern of change in income shares indicates that the rich, especially the very rich households, were able to generate their wealth much faster than the lower income households. Or, to put it another way, the rate of income increase in the low-income households lagged behind that enjoyed by the high-income households. Lorenz curves representing the distribution of household incomes for the past 35 years are presented in Figure 4. They reveal that income inequality was exacerbated rather than ameliorated. Over time, the Lorenz curves one after another generally deviated from the line of equality. The curve for 1966 was the furthest from the line of equality, as compared to the curves for 1971 and 1976.

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1981 833,432 209,281 134,364 39,375 12,250 6,152 2,599 2,561 4,724* NA 1,244,738

41,457 295,624 265,996 143,551 40,384 28,333 27,215 14,448 857,008

1971

1986 510,173 340,871 334,991 146,199 53,412 25,931 12,628 13,579 8,358 6,440 1,452,576 1991 190,788 202,511 400,234 314,379 176,406 99,646 56,851 60,169 44,794 36,434 1,582,215

Year

Note: *Number of households with monthly income of HK$40,000.00 or over. Source: Census and Statistics Department, [2 Jul. 2004].

⬍4,000 4,000–5,999 6,000–9,999 10,000–14,999 15,000–19,999 20,000–24,999 25,000–29,999 30,000–39,999 40,000–59,999 ⭌60,000 Total

⬍200 200–599 600–999 1,000–1,499 1,500–1,999 2,000–2,499 2,500–4,499 4,500–7,500 and over Total

Monthly Household Income (HK$)

Table 2: Households by Monthly Income, 1971 to 2001

1996 123,870 75,595 242,216 324,001 269,694 210,926 147,295 183,254 150,440 128,263 1,855,553

16,680 81,140 178,940 231,510 154,080 98,810 131,800 59,620 952,580

1976

2001 163,423 93,018 237,061 318,623 262,086 223,708 159,470 219,229 197,311 179,483 2,053,412


81

82

1.3 4.0 3.8 4.3 5.6 6.8 7.5 9.0 12.2 45.5 100

1.3 5.3 9.1 13.4 19.0 25.8 12.4 24.2 37.0 66.7 57.7 45.5

1st (lowest) 2nd 3rd 4th 5th 6th 7th 8th 9th 10th (highest) Total

Bottom 10% Bottom 20% Bottom 30% Bottom 40% Bottom 50% Bottom 60% Middle 20% Middle 40% Middle 60% Top 30% Top 20% Top 10% 2.3 6.2 11.3 16.4 23.4 30.7 14.3 28.4 44.5 60.3 49.3 34.6

2.3 3.9 5.1 5.1 7.0 7.3 9.0 11.0 14.7 34.6 100

1971

1.9 5.4 10.0 15.5 22.3 30.4 14.9 29.2 45.1 60.8 49.5 33.6

1.9 3.5 4.6 5.5 6.8 8.1 8.8 11.3 15.9 33.6 100

1976

1.4 4.6 9.0 14.4 20.9 28.7 14.3 29.1 45.0 61.9 50.4 35.2

1.4 3.2 4.4 5.4 6.5 7.8 9.4 11.5 15.2 35.2 100

1981

1.6 5.0 9.4 14.8 21.2 28.8 14.0 28.5 44.3 62.1 50.7 35.5

1.6 3.4 4.4 5.4 6.4 7.6 9.1 11.4 15.2 35.5 100

1986

1.3 4.3 8.3 13.3 19.4 26.8 13.5 27.5 42.9 64.2 52.8 37.3

1.3 3.0 4.0 5.0 6.1 7.4 9.0 11.4 15.5 37.3 100

1991

1.1 3.7 7.3 11.9 17.6 24.6 12.7 25.8 40.0 66.9 56.3 41.8

1.1 2.6 3.6 4.6 5.7 7.0 8.5 10.6 14.5 41.8 100

1996

0.9 3.2 6.6 11.0 16.6 23.6 12.6 25.8 40.3 67.6 56.5 41.2

0.9 2.3 3.4 4.4 5.6 7.0 8.8 11.1 15.3 41.2 100

2001

–60.9% –48.3% –41.6% –32.9% –29.0% –23.0% –11.9% –9.2% –9.4% 12.1% 14.6% 19.0%

% Change (1971 to 2001)

Sources: Stephen Chi-Man Chow, Economic Growth and Income Distribution in Hong Kong (Michigan: University Microfilms International, 1977); and Census and Statistics Department, [2 Jul. 2004].

1966

Decile

Table 3: Distribution of Total Household Income by Deciles (%), 1966 to 2001



Figure 2. Income Shares of the Bottom Deciles of Households, 1966–2001

12

Income Share (%)

10

8

Bottom 10% of Households

6


4


2

0 1966

1971

1976

1981

1986

1991

1996

2001

Source: Same as Figure 1.

Income Share (%)

Figure 3. Income Shares of the Top Deciles of Households, 1966–2001

80 70 60 50 40 30 20 10 0 1966

Top 10% of Households Top 20% of Households Top 30% of Households 1971

1976

1981

1986

1991

1996

2001


83


The Lorenz curve for 2001, which was the furthest from the line of equality and which significantly deviated from the other four curves for 1981, 1986, 1991 and 1996 represents a sharp increase in income inequality compared to 1981. Taken as a whole, the pattern of the Lorenz curves shows that high-income households increased their wealth progressively faster than low-income households. Figure 4. Lorenz Curves of Income Distribution, 1966–2001 1966 1991

1971 1996

1976 2001

1981 1986 Line of equality

100 90

percentage of income

80 70 60 50 40 30 20 10 0 0

10

20

30

40 50 60 70 percentage of households

80

90

100


The rising Gini coefficients since the 1970s, shown in Figure 5, are comparable to the rather more attenuated shape of the Lorenz curves and support the observation that there was a steady exacerbation of income inequality in Hong Kong over the past 35 years. In 1966, the Gini coefficient for household income distribution stood at a record high level. After a short period of improvement from 1966 to 1971, it showed a continuous rise. In 1981, it was 0.45, but in 1991 was 0.476 and in 1996 went up to 0.518, then 0.525 in 2001.12 12

84

Census and Statistics Department, Population Census: Basic Tables for Constituency Areas (Hong Kong: The Government Printer, 2001).


Figure 5. The Gini Coefficient of Income Distribution, 1966–2001

Gini coefficient

0.6 0.5 0.4 0.3 0.2 0.1 0 1957

1966

1971

1976

1981

1986

1991

1996

2001

Source: Stephen Chi-Man Chow and G.F. Papanek, “Laissez-Faire, Growth and Equity: Hong Kong”, Economic Journal 91 (1981): 466–85; Census and Statistics Department, [2 Jul. 2004].

The widening of the rich-poor gap in Hong Kong seems to be more serious compared to that in many countries. One study compared the aggregate distribution of income with GDP per capita for seven countries.13 It found that Hong Kong ranked above Singapore and the United Kingdom in 1990 in terms of economic development, as its per capita income of US$16,230 was the third highest after that of the United States and Japan (see Table 4). However, the distribution of household income for Hong Kong in 1991 looked more like that of Guatemala in 1979–81, a low level economy with a GDP per capita of less than US$3,000 in 1990. Hong Kong’s degree of income inequality was worse than that of all the countries studied except for Guatemala.14 Among those developed economies, Hong Kong’s income share of the first to the fourth quintiles was the smallest, while its income share of the fifth quintile was the highest (see Table 4). The share of the top 10 per cent of households in Hong Kong was more than 4 per cent above that for Singapore and more than 10 per cent above that for each of the other developed countries. Another cross-country study also confirmed that observation.15 Table 5 shows that the income gap between the top quartile of households and the bottom quartile in 13

14 15

Shu Kei Tsang, “Income Distribution”, in The Other Hong Kong Report 1993, ed. PoKing Choi and Lok-Sang Ho (Hong Kong: The Chinese University Press, 1994), pp. 361–8. Ibid. Tai Kee Mok, Eradication of Hong Kong Poverty (Hong Kong: Joint Publishers Ltd, 1999).

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Table 4: Comparison of Quintile Household Income Distribution Hong Kong GDP per capita 16,230 in 1990 (US$) Statistical Year First quintile Second quintile Third quintile Fourth quintile Fifth quintile Top 10%

1991 4.3 9.0 13.5 20.4 52.8 37.3

Guatemala

Spain

Singapore

2,920

10,840

14,920

1979–81 5.5 8.6 12.2 18.7 55.0 40.8

1980–1 6.9 12.5 17.3 23.2 40.0 24.5

1982–3 5.1 9.9 14.6 21.4 48.9 33.5

UK

Japan

14,960 16,950 1979 5.8 11.5 18.2 25.0 39.5 23.3

1979 8.7 13.2 17.5 23.1 37.5 22.4

US 21,360 1985 4.7 11.0 17.4 25.0 41.9 25.0

Source: Shu Kei Tsang, “Income Distribution”, in The Other Hong Kong Report 1993, ed. Po-King Choi and Lok-Sang Ho (Hong Kong: The Chinese University Press, 1994), pp. 361–8.

Hong Kong was 10 times in 1986 and reached 15 times in 1996. According to that study, Hong Kong’s income inequality was much worse than that of western countries and surprisingly even that of many developing countries in Asia. Table 5: Income Distribution as a Ratio of the Top Quartile to the Bottom Quartile (1975–86) Western Countries Netherlands Belgium Germany Hungary Ireland Sweden United Kingdom Switzerland Spain Finland Norway Italy Denmark United States France Australia New Zealand

Asian Countries 4.4 4.6 5.0 5.2 5.5 5.6 5.7 5.8 5.8 6.0 6.4 7.1 7.2 7.5 7.7 8.7 8.8

Taiwan Japan Israel South Korea India Bangladesh Indonesia Sri Lanka Thailand The Philippines Hong Kong

4.2 4.3 6.7 6.8 7.0 7.2 7.3 8.3 8.8 10.3 10.1 (1986) 12.3 (1991) 15.2 (1996)

Source: Tai Kee Mok, Eradication of Hong Kong Poverty (Hong Kong: Joint Publishers Ltd., 1999), p. 17.

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In summary, the findings from various studies suggest that while Hong Kong experienced outstanding economic growth as measured by GDP for long periods and a high increase in the average income, it did not manage to improve its performance with respect to equality. While better income measurements and higher quality data might affect the precise extent of inequality, it is doubtful they would indicate a reversal of the existing trend of inequality. From a comparative perspective, the rich-poor income gap in Hong Kong seemed to have widened more seriously than in other countries with a similar or even lower level of per capita income.

Economic Restructuring and its Impact on the Job Market For most of the postwar era, Hong Kong specialised in the manufacture of low-skilled labour-intensive manufacturing goods.16 However, the economy has undergone significant restructuring since the late 1960s. A large number of traditional industries have moved to Mainland China or to Southeast Asia to evade the high costs of production in Hong Kong. Manufacturing, which used to be Hong Kong’s largest employment sector, has lost its dominant position in the economy since 1980. Figure 6 shows that the number of Figure 6. Employment in Selected Industry Sectors

Thousands of Persons

Manufacturing Wholesale, retail and import/export, trades, restaurants and hotels Financing, insurance, real estate and business services 1200 1000 800 600 400 200 0 1984

1989

1990

1991

1992

1993

1994

2000

2001

Source: Same as Figure 1. 16

Suzanne Berger and Richard K. Lester, Made by Hong Kong (Hong Kong: Oxford University Press, 1997).

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manufacturing workers fell by over half from 898,900 in 1984 to 209,329 in 2001. However, the loss of manufacturing positions was replaced by a remarkable expansion in service employment which increased sharply from 743,300 in 1984 to 2,025,745 in 2001, a nearly three-fold increase.17 In fact, the industrial restructuring process amounted to a phase-out of “blue-collar” industrial operations which typically employed non-skilled workers, replacing them with higher valueadded processes like product-design, product-marketing and other financial and/ or business services, which required employees with professional qualifications. Thus, Hong Kong began in the 1980s to transform itself from a “product-producing” site into a “product-serving” centre. During a transition from an industrial economy to a service economy, large numbers of workers previously working in the manufacturing sector typically experience difficulties in finding new employment despite new jobs being created in the service sector. They need to acquire new skills. Those who could not meet new employment requirements (i.e., those without the requisite professional knowledge and necessary qualifications) were forced to take very low-paid jobs or were simply phased out of the job market. Such people were usually middleaged, unskilled and of low education. Although the service sector expanded dramatically, it could not accommodate all who were formerly employed by manufacturing industries due to the mismatch of qualifications between the manufacturing and service sectors. Partly and, arguably, mainly as a consequence of economic restructuring, the unemployment problem in Hong Kong was serious from the early 1980s to the late 1990s when the local manufacturing sector was becoming a sunset industry (see Table 6). Both unemployment and under-employment rates reached historical highs of 7.9 per cent and 3.5 per cent, respectively, in 2003 with over 270,000 people out of work. Even though some of the workers released from the manufacturing sector did manage to find jobs in other sectors, economic restructuring triggered a decrease in real income among manual workers. Given their education and skill constraints, former manufacturing workers suffered a reduction in income because they could compete only for low-paid unskilled positions.18 The 17

18

88

Census and Statistics Department, Population Census: Basic Tables for Constituency Areas. Hong Kong Council of Social Services, Labor and Poverty Conference (Hong Kong: Hong Kong Council of Social Service, 1996).

42.4 20.7 28.5 –10.0 56.0 64.1 71.7 74.0 43.5 52.9 13.8

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 1.7 0.8 1.1 –0.4 2.0 2.3 2.4 2.3 1.3 1.6 0.4

Labour Force Change (%) 113.8 83.6 47.4 29.7 50.4 56.3 95.6 71.2 207.5 174.8 277.6

Unemployed (000) 4.5 3.2 1.7 1.1 1.8 2.0 3.2 2.2 6.2 5.1 7.9

Unemployment Rate (%)

1.9 1.9 1.0 0.8 1.6 1.6 2.1 1.1 2.9 2.5 3.5

Underemployment Rate (%)


Labour Force Change (000)

Year

Table 6: Unemployment and Under-employment, 1982–2003


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employment situation for these jobs worsened over time due to the large number of applicants (i.e., a large manual labour supply) and the limited demand for unskilled workers. Employers were likely to suppress wages or require employees to work for long hours. Table 7 shows a decline in real wages since the mid-1990s for all selected industries. According to this data, workers in the manufacturing sector suffered most in terms of a decrease in real wages. It should be noted that an increase in real wages in the early 2000s reflected only the effect of continued deflation for that period, not the actual improvement of income. Another study found that the number of low-income workers (whose income level is below half the median income) with employment increased much faster than the number of total employed in the 1990s, indicating that more and more unskilled workers were under-paid (see Table 8). Looking at the data in Tables 7 and 8 together, it seems that the causes of the increased inequality in Hong Kong were not only related to unemployment but also to the staggered wages given to the lower classes.19 The reality that former manufacturing workers were unable to find new employment with equivalent pay would partly explain the link between a decline in manufacturing and an increase in inequality. The employment situation for the “higher value-added” positions (such as management and other professional jobs) was least affected by economic restructuring, even in the current period of economic recession, as these skilled, “knowledge-based” jobs required a variety of specific qualifications. It is Hong Kong’s market which largely sets wage scales. There is no mandatory minimum wage for local employees though the government imposes a minimum wage on imported workers. Table 9 shows pay differences in both absolute level and annual growth among different occupations. It is quite plain from this table that the labour market has been dichotomised, and that the income gap between less-skilled and skilled workers has widened. At the lower levels of the labour market (the nonskilled market), people compete for jobs and ask few questions about the conditions of employment. At the upper levels, on the other hand, people attempt to keep a commensurate level of income with their professional qualifications. According to the latest census, the monthly per capita income 19

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Problems of unemployment and low wages have been exacerbated by a constant and heavy inflow of migrants from Mainland China into Hong Kong. Their impact on inequality is discussed further in the section on public policies.

100.9 101.1 95.3 97.5 96.9 94.6 98.4 103.3 103.6

1990 1993 1995 1996 1997 1998 1999 2000 Dec. 2000 104.8 98.4 99.2 105.1 107.1 111.0 107.0 106.4

Transport Services 101.6 97.6 99.1 100.7 99.5 100.9 108.3 110.5

Finance, Insurance, Real Estate and Business Services

7,000 8,000 10,000

Median Income (HK$)

Source: Tai Kee Mok, Eradication of Hong Kong Poverty, p. 221.

1993 1995 1997 Change from 1993 to 1997

Year

91.2 103.3 100.5 102.6 101.2 99.4 107.0 111.3 107.4

Personal Services

3,500 4,250 5,000

Poverty Line (HK$)

18.3 28.8 30.6 67.2%

Poverty Population with Employment (10 thousand)

100.4 101.7 96.2 98.1 99.5 98.7 102.5 104.1 104.0

All Selected Industries

Table 8: Number of the Working Poor, 1993–7

Source: Global Policy Network, [2 Jul. 2004].

Manufacturing

Year

279.1 298.9 311.3 11.5%

Total Employment (10 thousand)

65.4 86.7 101.8 107.9 114.1 117.0 113.2 110.1 109.7

Consumer Price Indices (Oct. 1994–Sep. 1995 = 100)

Table 7: Real Wage Index for Craftsmen and Operatives by Industry (Sep. 1992 = 100)


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92 8,870 7,785 7,651 8,163 8,802 5,488 6,741

9,079 7,721 7,290 8,264 8,873 5,343 6,785

2.2 2.0 1.8 1.5

3.1 3.1 2.7 2.2

2001

9,792 10,258 9,452

9,549 10,145 9,367

2000

18,147 18,569 14,082 17,154

2000 (Dec.)

18,343 18,422 14,062 17,285

1999 (Dec.)

0.3 0.3 0.4 0.1

2002

7,720 8,164 9,147 5,351 6,663

8,782 6,644

10,013 9,909 9,234

17,777 18,555 13,088 17,907

2001 (Dec.)

Year

–0.1 0 0 –0.2

2003

7,671 8,293 8,913 5,326 6,551

8,327 6,730

9,746 9,988 8,560

18,120 18,518 13,945 17,978

2002 (Dec.)

2004 (projected) 0.8 0.8 0.7 0.6

7,420 8,063 8,280 5,174 6,260

7,721 6,787

9,510 9,971 8,483

17,792 18,594 13,771 17,268

2003 (Dec.)

Note: Average monthly salaries consist of basic wages and fringe benefits including: basic wages, commission and tips, shift allowance, cost-ofliving allowance, meal allowance, good attendance bonus, and guaranteed year-end bonus. Sources: The data in the upper panel comes from Census and Statistics Department, [11 Jul. 2004]. The data in the lower panel are from the Hong Kong Peoples Management Association and Wing Lung Bank International Institute for Business Development at Hong Kong Baptist University, Hong Kong Pay Level Survey Report (2003).

Manager and above Supervisory / technical staff General staff Operative staff

Overall Average Salary Annual Increase (%)

Supervisory Office / administrative supervisor Accounting supervisor Production supervisor Shipping supervisor Clerical General office clerk Receptionist / telephone operator Sales clerk / shop assistant Service workers Waiter / waitress Guard (in security and detective services) Production workers General worker Messenger / office assistant Delivery man Cleaner Dishwasher

Absolute Salary Level (HK$)

Occupation / Staff Level

Table 9: Average Monthly Salaries of Selected Occupations: Level and Growth



of the top 10 per cent of households was HK$27,800 in 2000, while that in the bottom 10 per cent had only HK$1,400.20 In addition, the low level of unionisation in Hong Kong together with the emergence of large corporation monopolies with sizable market power, guarantees the relatively weak bargaining power of low-level employees with regard to remuneration and fringe benefits. There is no specific statutory protection for collective bargaining in Hong Kong. This means that the non-skilled workers as a group have been especially vulnerable to the depressed economic conditions of a tightening traditional labour market under economic restructuring.

Social Policies and their Impact on Income Distribution In analysing inequality, the redistributive role of social policies must be analysed. The Hong Kong Government has long paid high attention to the active and efficient role of the market in development and wants to be “business-friendly”. The underlying principle is to keep government intervention in the market to a minimum, i.e., to guide the allocation of resources through fiscal policy. The Government does not have a systematic and effective policy framework for the proper redistribution of wealth. Compared with other developed economies, Hong Kong has a lower level of public spending on welfare as a proportion of GDP.21 In general, Hong Kong has relied heavily on privately financed social security instruments. Though the Government has emphasised the role of market forces on the economy, its social policies have little effect on income distribution. The Government subsidises, to a certain degree, the less fortunate members of society in terms of education and housing. While it is hard to say that public transfers have contributed little to income equality in Hong Kong, government efforts aimed at income redistribution have been countered or subverted by loopholes in these policies and the implications of other policies geared towards economic benefits.

Education Assuming that more education leads to higher income and less education translates into lower income, it is a common belief that higher education 20 21

South China Morning Post, 29 Aug. 2001. Centre for Analysis of Social Exclusion, Social Welfare in East Asia: Low Public Spending but Low Income Inequality? (UK: London School of Economics, 1998).

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has an inverse correlation with inequality. As a knowledge-based economy favours those with expertise, a higher wage rate is accrued by those with more education. When more and more of the total population become educated, however, the wage differences are eroded and therefore, in a relative sense, income inequality is reduced. Expansion of education, especially tertiary education, was one of the main social policies that the Hong Kong Government pursued in the late 1990s. Over the past two decades, Hong Kong’s educational system has been transformed from an elite-orientated system to a mass-orientated one. The implications are clearly reflected in the changes in the distribution of educational attainment for the population aged 15 and over (see Table 10). From this one can conclude that Hong Kong’s population is becoming more educated over time. In 1991 about 13 per cent of the population had no schooling. The figure dropped to about 7 per cent in 2003. At the same time, the population with higher education degrees increased from 5.9 per cent in 1991 to 13.4 per cent in 2003. According to a report of the University Grants Committee on higher education, only 2.2 per cent of the population in the 17–20 age group could study in local universities in 1981. But by 2001, with government financial support, this group increased to nearly 18 per cent.22 This means that there are more than 60,000 full-time students studying at the eight government-funded institutions and 23,000 graduates produced each year. Table 10: Distribution of Educational Attainment of Population Aged 15 and Over (%) Educational Attainment

1991

1996

2001

2003

No schooling / kindergarten Primary Lower secondary Upper secondary Matriculation Tertiary Non-degree course Degree course Total

12.8 25.2 19.1 26.7 4.9

9.5 22.6 18.9 27.7 6.1

8.4 20.5 18.9 26.3 9.4

6.9 20.4 46.2

5.4 5.9 100

4.8 10.4 100

3.7 12.7 100

7.8 13.4 100

5.3

Source: Census and Statistics Department, [2 Jul. 2004]. 22

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Stewart R. Sutherland, Higher Education in Hong Kong (Report of the University Grants Committee, 2002).


Although any policy aimed at expanding education is not usually directly aimed at reducing inequality, it does have mixed effects on income distribution, depending on how the market remunerates different “degrees” of education. A school certificate is just one approximate indicator of a person’s educational level. Only those with a high quality education can be awarded with a higher income. On the one hand, a rise in the educational attainment of the working population should reduce wage gaps if educational qualification is an important determinant for salary level. On the other hand, the law of diminishing returns suggests that the entry wage rate of labour with a certificate of high education will decrease as the proportion of workers with similar certificates rises. The connection between more equal educational opportunities and a decrease in the starting salary for university graduates seemed apparent in Hong Kong. One study found that, in the 1980s and 1990s, the wage disparity in Hong Kong decreased as the share of university graduates in the labour force increased.23 Having surveyed over 40,000 employees and 61 common jobs from four staff levels, another study reported that generally speaking, the starting salary for fresh graduates across different job functions or business sectors had been declining since 2002.24 Recently, Hong Kong newspapers regularly report instances in which thousands of university graduates are found queuing to apply for jobs requiring only a secondary education.

Public Housing Public housing is a major category of government spending and the Hong Kong Government has an ambitious plan to provide affordable housing for the poor, if not for all.25 A large amount of government resources, in various forms, as well as favourable policies have been oriented to public housing projects and government-subsidised housing estates. Without doubt, the development of public housing in Hong Kong has contributed greatly to the social well-being of the Territory.26 23

24

25

26

C. Simon Fan and Kui-Yin Cheung, “Trade and Wage Inequality: The Hong Kong Case”, Pacific Economic Review 9 (2004): 131–42. The Hong Kong Peoples Management Association and Wing Lung Bank International Institute for Business Development of Hong Kong Baptist University, Hong Kong Pay Level Survey Report (2003 and 2004). Y.M. Yeung and Timothy K. Y. Wong, Fifty Years of Public Housing in Hong Kong: A Golden Jubilee Review and Appraisal (Hong Kong: The Chinese University Press, 2003) Ibid.

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Nonetheless, the role of government-subsidised housing on income distribution is undermined by the Government’s high concern for the wellbeing of land and property markets, and also the loopholes in the public housing policy. For years, land premiums have been the most important government revenue and the state of the property market is often an indicator of Hong Kong’s economic well-being. For this reason, the Government’s housing policy has periodically veered away from low-income classes to favour the interests of property developers. Indeed the Government has occasionally downgraded the aim of its public housing programme or even suspended its housing projects in order to maintain high private real estate prices. The fact that there are many well-off families living in public housing also reduces the equity and efficiency of the public housing programme in reducing inequality.27 What is more, a large proportion of government housing subsidies actually go to senior government officials and professionals who are included in the middle-income category. This means that a privileged minority benefits more than the low-class majority in terms of housing allowances. Thus, the redistributive effects of government-financed housing on the very poor are further undermined.

Migration Policy for People from the Mainland Many reports on Hong Kong’s inequality claim that a large flow of new immigrants (NMIs) from the Mainland contributes to increased inequality.28 Under the Hong Kong migration control scheme, the immigration quota for Mainland people is 150 per day, or about 54,750 per annum. The number of NMIs nearly doubled during the 1990s from 143,994 in 1991 to 266,577 in 2001.29 However, income distribution in Hong Kong is not simply affected by the number of Mainland immigrants but by their characteristics and income level. This is due to the selective immigration policy. According to the current special immigration arrangement between Hong Kong and Mainland China, mainly two categories of Mainland people are guaranteed one-way permits to Hong Kong: offspring and spouses of Hong Kong citizens. Nonetheless, those qualified for the right of abode in Hong Kong have to wait for some time, 27

28 29

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Hon-Kwong Lui, Income Inequality and Economic Development (Hong Kong: City University of Hong Kong Press, 1997). Ibid. Census and Statistics Department, (2004).


often years, to obtain a space under the quota control. Understandably, a high share of NMIs is children aged below 15 and middle-aged women (see Table 11). Table 11 highlights selected characteristics of the NMIs. It shows that most of working age were females, and that the educational attainment of NMIs was generally lower than that of the whole population. The proportion of NMIs who received upper secondary and tertiary education was much lower than the corresponding figures for the whole population. Therefore, the NMIs tended to take up jobs that required less skill. As a result, the income levels of NMIs, either monthly income from main employment or monthly household income, were consistently lower than those of the whole working population. The unemployment situation was worse for the NMIs as their labour force participation rate was lower than that of the whole population. Table 11 also reports that the NMIs received less government subsidisation for their housing compared with the whole population. Given these characteristics, it is not surprising to find that when the NMI data is removed, a more equal income distribution pattern is observed.

Social Welfare Policy Social welfare is the third largest expenditure of the Hong Kong Government after education and health. In general, social welfare services are quite diverse, from family and child welfare services to group and community support services. A major safety net, The Comprehensive Social Security Assistance Scheme, provides cash allowances and services to individuals and families who are in need of basic livelihood assistance. Recently, the number of assistance cases under the scheme has rapidly increased due to the effects of the restructuring and social change in Hong Kong. However, the Government is cautious vis-à-vis comprehensive social security for two reasons. Firstly, full-coverage social security would require taking more profits from Hong Kong’s rich who are the major players in economic investment. This might discourage their incentive to invest. Secondly, a welfare state may cultivate a “dependency culture”, which might encourage unemployed people to depend financially on others, ultimately undercutting Hong Kong’s prosperity and preventing the attainment of maximum growth. It is worth noting that social welfare provisions in Hong Kong have never been as comprehensive as other societies whose levels of economic development

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98 10.3 24.2 32.8 24.9 7.8 60.9

Education No schooling / kindergarten Primary Lower secondary Upper secondary / matriculation Tertiary Labour force participation rate (%)

% of population by housing type Subsidised public rental housing Government subsidised sale flats Private permanent housing Temporary housing Non-domestic housing

Median monthly income from main employment (HK$) Median monthly household income (HK$)

20.9 36.5 33.9 8.7 1,038

25.3 41.1 30.0 3.7 614

40.5 3.6 1.4

13.3 0.9

9,964

7,750 13.6

5,170

3,600

12.8 25.2 19.2 31.7 11.2 64.3

100

2.6

Whole Population

% of NMI % of population by age group 0–14 15–34 35–64 Over 65 Sex ratio (no. of males per 1,000 females)

NMIs

1991

26.2 4.0 61.2 7.8 0.8

13,000

6,500

6.4 23.7 32.6 26.6 10.7 54.3

29.0 37.4 29.5 4.2 609

2.7

NMIs

38.5 11.4 46.9 2.0 1.1

17,500

9,500

9.5 22.6 18.9 33.8 15.2 62.8

18.5 33.1 38.3 10.1 1,000

100

Whole Population

1996

Table 11: Selected Statistics of New Mainland Immigrants (NMIs)

45.3 6.5 43.7 4.1 0.4

12,050

6,000

6.7 25.3 38.4 23.9 5.7 44.2

35.0 32.1 30.2 2.7 494

4.0

NMIs

31.9 16.9 49.0 1.1 1.2

18,705

10,000

8.4 20.5 18.9 35.8 16.4 61.4

16.5 30.2 42.1 11.1 960

100

Whole Population

2001


4.9 0.9 3.2 10.3 15.2 15.7 24.0 25.4 0.5 9.2 3.7 10.3 15.9 13.2 14.7 13.5 18.5 1.0

Whole Population

8.5 1.8 5.2 13.5 22.0 14.7 8.3 25.3 0.7

NMIs

12.1 5.0 12.1 16.8 13.8 12.3 8.5 18.6 0.8

Whole Population

1996

3.0 0.9 4.1 10.9 30.7 11.0 4.1 34.9 0.3

NMIs

10.7 5.5 15.3 16.3 15.0 9.9 7.3 19.5 0.3

Whole Population

2001

Note: New Mainland immigrants are defined as those who have resided in Hong Kong for less than seven years. Source: Census and Statistics Department, 2001 Population Census Theme Report — Persons From the Mainland Having Resided in Hong Kong for Less Than 7 Years (Hong Kong, 2004).

% of working population by occupation Managers and administrators Professionals Associate professionals Clerks Service workers and shop sales workers Craft and related workers Plant and machine operators and assemblers Elementary occupations Skilled agricultural and fishery workers, and others

NMIs

1991

Table 11: (continued)


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were much behind Hong Kong. A comparison of the ratio of received social security allowances to average wages among several Chinese cities in the early 1990s shows that the ratio for Hong Kong was the smallest, only about 16 or 19 per cent, depending on the recipient category (see Table 12). It was 34 per cent for Taipei, 60 per cent for Guangzhou, 34 per cent for Shanghai and 44 per cent for Beijing. Hong Kong came in with only half or less than these figures. This lower ratio makes it difficult for the Government to allocate funding to its citizens evenly. Table 12: Comparison of the Level of Social Security Allowance Year

City

1992 1993 1993 1993 1995

Taipei, Taiwan Guangzhou, China Shanghai, China Beijing, China Hong Kong

Amount of Social Security Allowance

Social Security Allowance as % of Average Income

NT$4,920 RMB200 RMB120 RMB125 HK$1,490 (adult) HK$1,810 (elderly)

34.0 59.6 33.7 44.1 15.9 19.4

Source: United Daily, 16 Oct. 1995.

Privatisation of Public Services The recent trend towards privatisation of public services is part of the Government’s plan to “cut fat” in response to the negative consequences of economic restructuring. Public services, notably in public housing management and urban cleaning, have been increasingly outsourced or privatised through bidding in order to reduce government involvement. The right to operate public services formerly provided by the Government is usually allocated to the lowest bidder. Bidders are therefore impelled to reduce their operating costs so as to qualify as the lowest among a pool of competitors. However, the Government has not established effective mechanisms to monitor the bidding firms’ employee payrolls. Wages, as a major part of operating costs, are, of course, intentionally held down. Moreover, as part of their cost-cutting strategies, firms which have successfully obtained the operation rights tend to employ only a small number of “core” employees for management and skilled positions, and a large number of “non-core” workers to fill non-skilled positions. The “non-core” workers are generally employed part-time or sub-contracted for short-term stints. Understandably, the demand elasticity for “non-core” workers is high,

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their bargaining power is minimal and their wages are generally kept low. Furthermore, due to the temporary nature of their jobs, these unskilled workers receive the lowest level of protection from the Labour Law and are often exploited. They suffer long working hours with neither medical care nor paid holiday.30 In one extreme case widely reported by the local media, an elderly woman who worked as a cleaner for 16 hours a day was paid only HK$6 per hour (approximately 80 US cents). Low wages and lack of fringe benefits exacerbate the harshness suffered by the masses of low-skilled service workers.

Concluding Remarks Through examination of household income data, this paper assesses the changing trends and magnitude of income inequality in Hong Kong. It also examines the factors influencing income distribution over the past four decades. While Hong Kong is undoubtedly a successful example of laissez-faire development, achieving a remarkable degree of prosperity, income inequality has worsened over the years and is high compared to other countries. Unfortunately, it is likely to persist as ongoing economic restructuring will continuously and substantially differentiate workers by skill level and hence income level. The existing social policies are not able to alter this trend effectively. Hong Kong’s experience provides a good test of the Kuznet’s hypothesis. It seems that the validity of his prediction is undermined in this case. The convergence towards equality has not necessarily paralleled high economic growth. Rather, an asymmetric U-shaped relationship, similar to the pattern depicted by Norman Cloutier has been observed. During the past decades, it is apparent that there was less inequality in the early 1970s compared to before, but thereafter the gap did not narrow much further. The precise extent of inequality discussed in this paper may be debatable due to issues related to data reliability and methodological appropriation. However, the trend towards increased inequality is less disputable. Looking ahead, the authors believe that the widening income gap in Hong Kong will continue. The Government faces a tremendous challenge in reversing 30

Hung Wong, “Xianggang jiushi niandai pinchung de yuanyi: weiguan, hongguan yu zhongching de fenshi (The Causes for Poverty in 1990s Hong Kong: Micro, Macro and Metro Analysis)”, Pinchung he shehui fazhan (Poverty and Social Development) (Hong Kong: Asia Monitor Resource Centre and Hong Kong Social Security Society, 2000), pp. 3–30.

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this trend because inequality is inevitable in economic restructuring. The current process of market-led economic restructuring is not something that can be resisted or reversed. Whatever its cause, in the absence of proper social policies, it will generate a small, extremely wealthy class of the “new rich” and simultaneously a large population of the “working poor”. Secondly, it will be hard to come up with appropriate policies. Income inequality is not only an economic but also a political issue. Even though the causes of inequality may be fully known, solutions aimed at redistribution can be highly political. In order for one group to gain a larger share of total income, another has to give up a portion of its share. Policies with explicit redistributive goals will likely become the subject of fierce debate, especially given Hong Kong’s current political climate in which party politics dominate the Legislative Council.

Appendix A Brief Note on Measures of Inequality Three measures are used in this paper to analyse the pattern of income distribution: the aggregate distribution of income, Lorenz curve and Gini coefficient. In the first measure, the income for households is divided into successive groups from the lowest to the highest and then the proportion of the total income received by each income group is determined. If the top 20 per cent of households by income have a disproportionate share of more than 50 per cent of the total, while the bottom 20 per cent of households by income have only a small percentage of the total, the degree of income inequality could be high. The Lorenz curve is a graphical display of income distribution. The horizontal axis plots the number of income recipients at 10 points for the 10 decile groups, from the lowest to the highest earners, in cumulative percentage terms. The vertical axis plots a cumulative percentage share of income going to the successively accumulated deciles of income earning units and adds up to 100 per cent. If each percentage group of income recipients received its respective percentage of the total, the Lorenz curve would be a 45∞ diagonal and be representative of “perfect equality” in aggregate distribution of income. The more the Lorenz curves shift away from the diagonal the greater the bend or proximity to the bottom axis the greater the degree of inequality represented. The Gini coefficient is defined as formula (1) where: P1i is income distribution for a particular income category, the ratio of Y1 (the average income) to the total income; P2i is the income distribution for another income category, the ratio of Y2 (the population) to the total population. It is a value that ranges between 0 and

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1, where 0 represents perfect equality and 1 represents extreme inequality. A Gini coefficient for most developing countries with highly unequal income distributions typically lies from 0.50 to 0.70. For developed countries with relatively equitable income distributions, it is likely to range from 0.20 to 0.35.31 1 Gini = ——————– n 2 Â (|P1i – P2i|) i=1

Y1i P1i = ——– Â Y1 Y2i P2i = ——– Â Y2

31

(1)

Todaro, Economic Development.

We would like to thank two anonymous reviewers for their valuable comments.

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