Demystifying Hong Kong’s poverty rate
A comparison of economically active and economically inactive households is telling
I attended the 2015 Commission of Poverty Summit where Chief Secretary Carrie Lam presented an analysis of the poverty situation in 2014 and the poverty figures for 2009-14. Her main point was that government transfers had helped to cushion people from poverty, such that the number of poor people fell from 1.04 million to 962,000 when transfers were taken into account.
Transfers also kept the growth in elderly poor down to 3.9 per cent, although this figure is forecast to rise significantly because of rapid ageing of the population.
However, a comparison of economically active and economically inactive households was telling. Population poverty rate in the first group declined from 10.7 per cent in 2009 to 9.0 per cent in 2014. The corresponding poverty rates were significantly higher among economically inactive households declining from 62.2 per cent to 57.6 per cent – about six times higher.
I was delighted to hear Lam point out the importance of getting people to work in order to alleviate poverty. Poverty has fallen since 2009 largely due to a robust job market. She anticipated that when the Low-income Working Family Allowance begins to take effect, the poverty rate might further decrease, although she cautioned it might not be sufficient to offset the rise in elderly poverty rates.
Lam also had a very important message that unfortunately got lost in the media reporting: the poverty measure does not give an accurate picture for the elderly because they typically have no incomes, and because the construction of the poverty line does not include assets.
I have always had reservations about using income to define the poverty line for this reason because it unavoidably overestimates the number of elderly poor, fuelling exaggerated claims about elderly poverty.
The government’s poverty line can be used in a smart way to obtain a better sense of the extent of poverty if it compares like with like.
A comparison of working adults aged 20-64 from 1985 to 2014 shows that poverty rates among economically active households have been remarkably stable, ranging between 7.8 per cent and 10.5 per cent.
When the data hones in on elderly individuals aged 65 or above, the poverty rates among economically active elderly households are about 50 per cent to 100 per cent higher than in households headed by working age adults. This difference is expected since elderly workers have passed their prime working years so their wages are generally lower.
Household poverty rates among economically inactive elderly households are high, but they were not much higher than those of economically inactive households headed by working age adults. Since elderly households are mostly retired and some have assets, their poverty rates are likely to be significantly overestimated.
Policy measures should focus on getting the economically inactive in working age households to re-enter the labour force. This would not only alleviate poverty rates immediately, but prevent future elderly poverty rates from rising.
The share of economically inactive households headed by working age adults increased from 3.0 per cent in 1985 to 7.5 per cent in 2014. This is an increase from 38,500 households in 1985 to 140,200 in 2014. Many of them report they are not in the labour force for no compelling reason (i.e., illness, homemaker, student or in prison).
And these households have high poverty rates.
The raw numbers show there were 77,000 economically inactive households classified as poor in 2014 (with 111,000 working age adults living in them) – compared with 34,900 in the 1996 By-Census.
The rise in such households dovetails with the rapid increase in government social welfare expenditure per capita from the mid-1990s.
It appears to me that the widespread perception of a spectacular rise in poverty rates in the past decade or so is not substantiated. Rather, the household poverty rate has risen modestly since 1985. The government’s recurrent cash transfer has done a reasonable job containing poverty, although it might have inadvertently provided incentives for more people to drop out of the labour force, thereby creating more poverty. We should be concerned about this.
The alarming media headlines are overdone. This is not to say there aren’t families who are destitute, even obscenely so amidst rising prosperity. These are newsworthy stories, but they do not provide the full picture. The wealth gap, especially due to property prices, has indeed risen dramatically. However, this is not the same as poverty and it is not what the poverty line measures.
Richard Wong Yue-chim is the Philip Wong Kennedy Wong Professor in political economy at the University of Hong Kong