Hong Kong's poor need a lift - and not only on paper

James Vere and Paul Yip look at the problems with adopting a relative measure of poverty, given that policies affecting household income can alter the benchmark

PUBLISHED : Friday, 27 September, 2013, 12:00am
UPDATED : Friday, 27 September, 2013, 1:16am

Ever since the re-establishment of the Commission on Poverty, drawing an official poverty line for Hong Kong has been a high priority on the government's to-do list. On Saturday, the administration is expected to announce details of the new poverty line, long rumoured to be set at half the median household income.

The rationale for benchmarking poverty against median household income is rooted in the idea of relative poverty. Unlike more traditional notions of poverty, which are based on absolute needs (for example, food, shelter, clothing), relative poverty involves pegging one's standard of living - for better or worse - to the fortunes of the middle class. The idea is that, as society advances, the poverty threshold should increase in real terms.

Measuring absolute poverty in Hong Kong would reduce the ‘noise’ inherent in the relative approach

The problem with a relative poverty measure is that, when it is used for the purpose of policy evaluation, it is always necessary to be mindful that the policy could alter the benchmark. This issue does not arise with an absolute poverty line, because the basic needs of a family cannot be amended by government policy (though society's concept of what these "basic needs" are may change from time to time). The government can, however, manipulate the median income. For instance, if it were to tax the middle class and transfer all the proceeds to a few tycoon families, this would reduce relative poverty in Hong Kong - not because of any change in actual poverty, but simply because the benchmark would be lowered.

Unfortunately, while this example is quite fanciful, any policy that affects the median family income in Hong Kong could count as a poverty alleviation measure under the proposed metric.

For instance, Hong Kong provides universal access to subsidised education and health care. If such access were to be means-tested - for instance, by requiring higher-income families to pay more fees - relative poverty would be reduced . This is because, under the commission's guidelines, means-testing these benefits would cause them to be added to household income. Depending on who gets the benefits, the median family income could remain the same or rise, raising the poverty threshold. But, in either case, t he income of lower-income households would increase by a margin large enough to reduce measured poverty.

This problem is inherent in the relative approach to poverty measurement. Anything that affects the median family income in Hong Kong will cause the number of people in "relative poverty" to change. As a consequence, every time the relative poverty measure goes up (or down), one has to ask whether it is because of changes among lower-income households or changes to the benchmark.

Consequently, we should not give up on measuring absolute poverty. Doing so would not only reduce the "noise" inherent in the relative approach, but also suggest concrete measures to directly address poverty. What are basic needs in Hong Kong's society? Nutrition is one, of course, but benchmarks are also needed for other items, such as clothing, transport, communications and adequate living space.

In particular, public housing - which is provided for about 30 per cent of the population - is a substantial component of the well-being of lower-income households and needs to be taken into account when measuring the extent and intensity of local poverty. In setting out an official definition of poverty, we should strive to lay a solid foundation for poverty alleviation efforts.

Since the benchmark of half the median income is taken from Hong Kong's income distribution, then, based on our historical income distribution, there will always be around 16-20 per cent of the population below this benchmark.

It has been suggested that we should aim to cut the number of households below the threshold to a single-digit percentage, which is certainly unrealistic and impossible and, in the absence of an absolute poverty measure, potentially not even related to whether these households are actually poor or not.

The more interesting question is to understand the social mobility of people who are below the threshold level and find out how they manage to move up and stay above the threshold. This information will be useful in designing policies to mitigate the poverty problem and respond to changes in Hong Kong's economic environment. We are carrying out a study to provide this information. Also, if we can know where these households are located, we can come up with more focused community-based intervention programmes.

The government seems sincere in its efforts to address Hong Kong's poverty problem, but a partnership approach is needed to make it work, involving the business sector, individual workers, the government's commitment, and suitable policies. We need to take collective responsibility in responding to the challenge, respond to the needs of the vulnerable and make Hong Kong a place for all rather than a haven for the privileged few.

James P. Vere is an associate professor in the School of Economics and Finance, and Paul Yip is a professor in the Department of Social Work and Social Administration, at the University of Hong Kong