Income Inequality and Distributive Income Inequality and Distributive Justice in Hong Kong and Mainland Justice in Hong Kong and Mainland

China: A Comparative AnalysisChina: A Comparative Analysis

Xiaogang WUXiaogang WUAssociate Professor of Social Science Associate Professor of Social Science

Hong Kong University of Science & TechnologyHong Kong University of Science & TechnologyHong Kong SARHong Kong SAR

March 14, 2008 March 14, 2008

I. Introduction

Inequality and Equity in Income Inequality and Equity in Income DistributionDistribution

Inequality: how large the gap is, usually Inequality: how large the gap is, usually measured by Gini coefficient, or other measured by Gini coefficient, or other similar indicators.similar indicators.

Equity: how large the gap should be, Equity: how large the gap should be, normative judgment of the inequality, normative judgment of the inequality, in which the value system is involved. in which the value system is involved.

Public debate on income distribution is Public debate on income distribution is more directly related to more directly related to inequityinequity than than to inequality.to inequality.

Hong Kong and China in ComparisonHong Kong and China in Comparison Income inequality is very high by international standard.Income inequality is very high by international standard.

0.525 (2001)

0.447 (2001)

Increasing Income Inequality in Recent YearsIncreasing Income Inequality in Recent Years

0.3

0.32

0.34

0.36

0.38

0.4

0.42

0.44

0.46

0.48

0.5

1986 1991 1996 2001 2006/2005

Hong KongChina

Public Debate on InequalityPublic Debate on Inequality

Is income inequality too high now? Is income inequality too high now? • The Public: YES, and it has caused social The Public: YES, and it has caused social

discontent and may lead to social unrest. discontent and may lead to social unrest. • Government/liberal economists: it depends on how Government/liberal economists: it depends on how

you calculate it. Gini coefficient as a measure of you calculate it. Gini coefficient as a measure of income inequality has its own limitations.income inequality has its own limitations.

Nevertheless, it seems that both are doing Nevertheless, it seems that both are doing OK. Society is largely stable even though OK. Society is largely stable even though income disparity is enlarging. income disparity is enlarging.

The discontent in Hong Kong is less severe The discontent in Hong Kong is less severe than that in the Mainland, even though than that in the Mainland, even though income inequality in Hong Kong is higher. income inequality in Hong Kong is higher.

The Real Question is About Equity not EqualityThe Real Question is About Equity not Equality

Do Chinese people generally prefer Do Chinese people generally prefer egalitarianism (egalitarianism ( 不患寡而患不均不患寡而患不均 ))? How do ? How do they view the fairness of income they view the fairness of income distribution? distribution?

Why has income inequality caused more Why has income inequality caused more discontent in China than in Hong Kong, both discontent in China than in Hong Kong, both are Chinese societies but with different are Chinese societies but with different institutional legaciesinstitutional legacies. . • Hong Kong: Hong Kong: laissez-fairelaissez-faire capitalism capitalism• China: reforming state socialismChina: reforming state socialism

2. Data and Designed Questions2. Data and Designed Questions Two survey data setsTwo survey data sets

• Hong Kong: Hong Kong: “Social Inequality and “Social Inequality and Mobility in Hong Kong” (2006-2007). Mobility in Hong Kong” (2006-2007). N=4013 (age 18-60).N=4013 (age 18-60).

• China: “China General Social Survey, China: “China General Social Survey, 2005” N= 10,372, age (18+), restricted 2005” N= 10,372, age (18+), restricted to 18-60. to 18-60.

Both include some comparative questions Both include some comparative questions on the attitude to inequality and fair pay. on the attitude to inequality and fair pay.

Questions Questions How much is considered poor and how much is How much is considered poor and how much is

considered rich. considered rich.

Do Earn/Should Earn Income for listed occupations. Do Earn/Should Earn Income for listed occupations. If the “do-earn” and “should-earn” are consistent, If the “do-earn” and “should-earn” are consistent, it is considered “fair.” hence, inequality and it is considered “fair.” hence, inequality and equity are empirically differentiable.equity are empirically differentiable.

Perceptions of opportunities Perceptions of opportunities

Political participation (in Hong Kong).Political participation (in Hong Kong).

Table 3. Perceived Boundary for “Poor” and “Rich” in Hong Kong and Mainland

Monthly Household Income

Below to be Considered as

“Poor”)

Monthly Household Income Below to be

Considered as “Rich”)

Rich/Poor Ratio

Hong Kong

(HKD)

6,229

(1,768)

102,888

(110,542)

17.1

(18.1)

Mainland China

(RMB Yuan)

633

(602)

4,575

(8,885)

9.9

(19.4)

3. Results3. Results

Table 4. Monthly Income “People Do Earn” and “People Should Earn” for Selected Occupations in Hong Kong and the Mainland

D: Actually Earn A: Do Earn

B: Should Earn

C: Ratio: A/B Mean Occup code 1

Hong Kong 1.Cleaner 4,796 6,310 0.76 4,529 912 2.Factory Workers 6,258 7,472 0.84 4,846 922 3.Office Clerks 7,650 8,915 0.86 11,254 411-419 4.Lawyers 53,958 57,606 0.94 72,556 241 5.Corporate Executives 54,130 62,170 0.87 85,877 121 6.Professors 75,383 76,754 0.98 53,777 231 7.Doctors in Private Practice 77,949 81,171 0.96 78,351 222 8.Senior Govn’t Officials 155,140 145,203 1.07 103,525 111 Ratio: Highest/lowest 32.3 23.1 - China 1.Farmers 459 778 0.59 2.Peasant Workers 781 1,082 0.72 3.Urban Factory Workers 966 1,317 0.73 4.Professors 4,285 4,514 0.95 5.Senior Govn’t Officials 5,894 4,361 1.35 6.CEO in Large Companies 25,885 22,894 1.13 Ratio: Highest/lowest 56.4 29.4 -

Fairness Index: An International Fairness Index: An International ComparisonComparison

Gini A: Gini coefficients of “do earn Gini A: Gini coefficients of “do earn income” income”

Gini E” Gini coefficients of “should Gini E” Gini coefficients of “should earn income” earn income”

Fairness of inequality: GiniE/GiniAFairness of inequality: GiniE/GiniA The “fairness index” are also The “fairness index” are also

available from other countries based available from other countries based on the data collected by ISSP. on the data collected by ISSP.

Table 5. Perceived Actual and Ethical Inequality: Cross-Country Comparison Countries GiniA: Average Gini

Index of Salaries People “Do Earn”

GiniE: Average Gini Index of Salaries People “Should Earn”

Average Ratio of GiniE/GiniA

Hong Kong (2006) .47 .44 .94 China (2005) .44 .38 .86 Russia .66 .39 .61 Chile .60 .47 .79 Poland .58 .44 .77 Latvia .58 .41 .70 Hungary .56 .37 .67 Czech Republic .53 .39 .76 France .52 .38 .74 Philippine .49 .46 .97 Great Britain .49 .36 .73 Slovenia .47 .34 .74 Japan .46 .37 .81 Israel .45 .36 .80 Canada .45 .33 .76 Portugal .45 .33 .73 United States .43 .35 .82 New Zealand .43 .32 .76 Germany East .43 .32 .74 North Ireland .42 .32 .76 Australia .42 .31 .74 Bulgaria .42 .28 .68 Germany West .41 .34 .82 Austria .41 .32 .78 Cyprus .40 .33 .82 Sweden .35 .22 .65 Spain .34 .22 .65 Norway .30 .21 .73 Slovakia .25 .19 .82 Average of all .46 .34 .76

Findings Findings Respondents in both Hong Kong and Mainland show Respondents in both Hong Kong and Mainland show

a very high degree of legitimate inequality. a very high degree of legitimate inequality. Why? Why?

• Hong Kong is perceived as “the land of Hong Kong is perceived as “the land of opportunity.” opportunity.”

• In China, enlarging inequality has been perceived In China, enlarging inequality has been perceived as the “Necessary Evil” to improve efficiency in as the “Necessary Evil” to improve efficiency in economic reform (Li 2002). China’s rapid economic reform (Li 2002). China’s rapid economic growth in the past few decades has economic growth in the past few decades has also created a perception of new opportunities for also created a perception of new opportunities for those who have lagged behind. those who have lagged behind.

Table 6. Attitude towards Inequality and Perception of Opportunities Strongly

Agree or Agree%

Neutral % Disagree or

Strongly Disagree%

Mean

Hong Kong Respondents (1) Tax more on rich to help the poor 59.3 21.4 19.3 2.47 (2) HK is full of opportunity 75.7 14.1 10.1 2.20 (3) HK is an equity society 51.1 20.0 16.9 2.43 (4) HK is a place for competent people 58.4 20.7 6.6 2.20 (5) HK government takes good care of the poor 40.3 22.0 37.7 2.98 China Respondents (1) Tax more on rich to help the poor 85.0 8.1 6.9 1.86 (2) It is fair some earn more some earn less 59.7 13.0 27.3 2.58 (3) Equal opportunities if smart enough 80.3 6.9 12.8 2.08 (4) Peasants/workers’ kids have equal chance 74.8 8.0 17.3 2.21 (5) Government did good job to help the poor 22.9 38.3 38.8 3.23

Perception of Opportunities and Fairness IndexPerception of Opportunities and Fairness Index

In both Hong Kong and China, if people In both Hong Kong and China, if people favor more fair income distribution, they favor more fair income distribution, they are more likely to agree to tax the rich to are more likely to agree to tax the rich to help the poor and less likely to agree with help the poor and less likely to agree with statement related to equal opportunities statement related to equal opportunities and merit-based competition.and merit-based competition.

The investigation of the relationship The investigation of the relationship between the distributive fairness index between the distributive fairness index and answers to the above questions and answers to the above questions suggest that the constructed fairness suggest that the constructed fairness index is valid. index is valid.

Political Implications for Pay EquityPolitical Implications for Pay Equity People’s perception may not always reflect People’s perception may not always reflect

the actual degree of income inequality, and the actual degree of income inequality, and this perception, in contrast to their normative this perception, in contrast to their normative criteria, will yield a sense of justice/injustice criteria, will yield a sense of justice/injustice leading to acceptance, frustration, anger, or leading to acceptance, frustration, anger, or further actions. further actions.

The political implications of the distributive The political implications of the distributive justice: if people feel more unfair towards justice: if people feel more unfair towards income distribution, they are more likely to income distribution, they are more likely to express their dissatisfaction through political express their dissatisfaction through political action. action.

In Hong Kong … In Hong Kong …

Table 8. Binary Logit Models of Political Participation in Hong Kong, 2006-2007 Voting in 2004

Legislative Election

Voting in 2003 District Council

Election

Participating in June 4 Memorial

Participating in July 1

Protest (2003) fairness index (logged)

-0.403* (0.183)

-0.413* (0.182)

-0.238 (0.339)

-0.587* (0.283)

Education: Junior high school 0.109

(0.114) 0.174

(0.113) 0.311

(0.254) 0.372† (0.214)

Senior high school 0.478*** (0.103)

0.471*** (0.103)

0.380† (0.280)

0.268 (0.196)

College or above 1.210*** (0.124)

1.167*** (0.124)

1.167*** (0.243)

1.086*** (0.207)

Male 0.030 (0.073)

-0.058 (0.073)

0.053 (0.146)

-0.183 (0.127)

Age 0.197*** (0.024)

0.203*** (0.024)

0.114* (0.050)

0.083 (0.414)

Age2 *10 -0.020*** (0.003)

-0.021*** (0.003)

-0.012* (0.006)

-0.009 (0.005)

Immigration status Pre-1987 -0.052

(0.096) 0.003

(0.096) -0.378† (0.215)

-0.548*** (0.203)

1988-1997 -0.335* (0.146)

-0.550 (0.151)

-1.248** (0.461)

-0.598* (0.287)

1998-2007 -2.570*** (0.360)

-2.877*** (0.389)

-1.542** (0.592)

-1.310** (0.425)

Constant -5.456*** (0.480)

-5.538*** (0.484)

-5.665*** (0.966)

-4.416*** (0.786)

Likelihood ratio 420.2 443.8 73.4 88.3 Degree of freedom 10 10 10 10 N 3766 3766 3766 3766

Table 9. Multinomial Logit Models of Political Party Preference in Hong Kong, 2006-2007

Which Party Stands for Your Interests?

Vote for Which Party if There Were a Legico Election Tomorrow

No Party Pro-democratic Independence Pro-democratic Fair -0.329

(0.221) -0.158 (0.233)

-0.133 (0.209)

-0.423* (0.201)

Education: Junior high school -0.008

(0.140) 0.192

(0.139) 0.166

(0.121) 0.116

(0.122) Senior high school -0.144

(0.127) -0.055 (0.129)

-0.040 (0.110)

-0.014 (0.109)

College or above 0.092 (0.151)

-0.300† (0.171)

-0.286* (0.145)

0.156 (0.131)

Male 0.056 (0.093)

0.143 (0.096)

-0.001 (0.083)

-0.009 (0.080)

Age 0.041 (0.028)

0.009 (0.028)

0.105 (0.024)

0.021 (0.023)

Age2 *104 4.573 (3.500)

0.036 (0.351)

0.056 (0.302)

0.265 (0.296)

Immigration status Pre-1987 -0.122

(0.129) -0.101 (0.130)

0.154 (0.112)

0.031 (0.111)

1988-1997 0.109 (0.172)

0.137 (0.177)

0.180 (0.151)

-0.215 (0.159)

1998-2007 -0.685** (0.228)

-0.511** (0.229)

-0.161 (0.159)

-0.325† (0.167)

Constant -2.287*** (0.523)

-1.858*** (0.527)

-0.885* (0.451)

-0.845† (0.043)

Likelihood ratio 44.6 44.1 Degree of freedom 20 20 N 3763 3732

Summary and ConclusionsSummary and Conclusions A different approach to examine the rising A different approach to examine the rising

income inequalityincome inequality Distinction between equity and equality, Distinction between equity and equality,

and compares people’s attitudes to and compares people’s attitudes to inequality and perception of opportunities. inequality and perception of opportunities.

The results has refuted the old belief from The results has refuted the old belief from that Chinese people favor absolute that Chinese people favor absolute egalitarianism. Instead, in both societies egalitarianism. Instead, in both societies the tolerance of income inequality is high. the tolerance of income inequality is high.

Comparing “Do earn” and “Should earn” IncomeComparing “Do earn” and “Should earn” Income

People in Hong Kong believe that the pay is fair in People in Hong Kong believe that the pay is fair in general: each occupation deserves what it is paid general: each occupation deserves what it is paid except for workers of low-status occupations, who except for workers of low-status occupations, who are underpaid, and senior government officials are underpaid, and senior government officials who are slightly over-paid. who are slightly over-paid.

In China, although people believe that farmers In China, although people believe that farmers and workers are underpaid, they also think that and workers are underpaid, they also think that senior government officials and executives in senior government officials and executives in large state-owned companies are over-paid by a large state-owned companies are over-paid by a high rate. high rate.

This may explain why income inequality has This may explain why income inequality has caused higher degree of unfairness and wider caused higher degree of unfairness and wider social discontent. social discontent.

International ComparisonInternational Comparison Compared to most other countries, Compared to most other countries,

however, both Hong Kong and Mainland however, both Hong Kong and Mainland respondents show very high rate of respondents show very high rate of normative acceptance of income normative acceptance of income inequality. People do have recognized the inequality. People do have recognized the existing high income inequality in their existing high income inequality in their societies. On the other hand, such high societies. On the other hand, such high inequality is largely normatively inequality is largely normatively acceptable and considered “fair”. acceptable and considered “fair”.

Related to Perceived OpportunitiesRelated to Perceived Opportunities Both Hong Kong and Mainland respondents Both Hong Kong and Mainland respondents

are surprisingly optimistic towards the are surprisingly optimistic towards the opportunities for social mobility, which are opportunities for social mobility, which are positively related to their sense of fairness.positively related to their sense of fairness.

The distributive justice also affects the The distributive justice also affects the support for government tax policies and support for government tax policies and evaluation of government performance in evaluation of government performance in addressing the problem of large income addressing the problem of large income inequality. inequality.

Political ImplicationsPolitical Implications In Hong Kong, if people feel more unfair in In Hong Kong, if people feel more unfair in

income distribution, they are more likely to vote income distribution, they are more likely to vote for the opposition party (pro-democracy camp) as for the opposition party (pro-democracy camp) as a way to express discontent, although they do not a way to express discontent, although they do not necessarily believe that the opposition party can necessarily believe that the opposition party can stand for their interests, and they are more likely stand for their interests, and they are more likely to participate in the public protest in July 1st, to participate in the public protest in July 1st, 2003.2003.

Thus, recognizing the mechanisms between Thus, recognizing the mechanisms between inequality, equity, and its social, psychological inequality, equity, and its social, psychological and political consequences is important in and political consequences is important in tackling the problems of rising poverty and tackling the problems of rising poverty and inequality. inequality.

Thank You!Thank You!