M-shaped society: Inequality?

Living in a city like Hong Kong, i have endless reasons for getting paranoid. At home, i get brown tap water. My share of frozen oil fish still sits in the fridge since news reports said the fish could cause health problem. What more fearful takes place at work -- the fear of losing my job. Recent job statistics from the government seems to tell a spine-chilling story about my future -- "Get rich, or you have to be poor. There is no middle ground!"

In the so-called M-shaped society, the distribution of income has polarized. The number of people who earn monthly income of less than HK$6,000 increased by 17% during the decade from 1996 to 2006. Payrolls for more than HK$10,000 rose 21%. However, the group of people who earn between HK$6,000 and HK$10,000 contracted by 8%. Academics pulled out the jargon called Gini Coefficient and said that inequality in Hong Kong is now scoring high relative to other comparable cities in the world. The situation is getting worse year after year, they said. Social groups warned that the middle class is disappearing and the society is going out of balance. Some people must be taking advantages over others, they claimed.

Worse, the unemployment rate remains buoyant, above 4%, compared with 1-3% during the decade from 1986 to 1995. Even top financial official Henry Tang threw cold water on hopes that the job market could recover, saying the jobless rate won't come down to the heyday level until we die. Is the city losing jobs? Many people say yes. They pointed to cheap labors across the border for taking away low-paying jobs. The others blamed former chief Tung Chee-hwa for leading the economic development to nowhere.

Even well educated people cannot escape from the misery, it seems. The job market is getting increasingly competitive when university graduates are accepting salaries low enough to make their elder alumni laugh. An average high school graduate is doing much worse than that 30 years ago. Some people said it was a rat race for academic qualifications in which everyone is struggling but no one gains at all.

Are we coming to the end of the world? No. Far from it.

From this paragraph onward, i am going to cheer you up. i am going to tell you the truth behind the numbers. The M shape, jobless rate and even fresh graduate income are irrelevant as an indicator of inequality and job opportunities. None of them means anything miserable. Instead, they are the outcomes of natural progress of our society.

i am not going to bore you with number crunching and twisting. i just want to point out a simple fact -- people follow different paths along their lifetime.

Randomly take two fresh graduates from university. They would likely start with monthly income more or less the same, say HK$9,000. Ten years later, their income could be anywhere between HK$20,000 to HK$50,000. Another ten years later, one of them might possible become a successful businessman while the other might possibly have problem to earn a living. Further ten years later, the successful businessman could unfortunately go broke and the other catch a second wind to become a billionaire.

That's natural. In a marathon, ten athletes who start at the same line could end up miles apart. How does that relate to the M-shape situation?

A wave of new birth kicked in during the decade following the end of World War II. See the longest pair of bars, for men and women, in the following chart and you know the size of the so-called baby-boomers. Baby-boomers, men and women aged between 40 and 50, amounted to roughly 1.3 million in 2006.


In 1996, the baby-boomers of course were 10 years younger than now. See the following chart.

The widening of income distribution over the past decades was resulted from the fact that the baby-boomers were explored their fortune. Twenty years ago, they just started their career and received similar incomes. As time went by, some did better than the others. In their forties, in 2006, the baby-boomers made various levels of achievements. They are not necessarily going to extremes. There could be a lot of middle-range performers. Merely the dispersed spread of personal performance is enough to make the statistics take its present shape.

Compare two hypothetical societies -- one comprising mostly 20-year-old people and the other comprising mostly 40-year-old. Can we say that the younger society is more equal than the older one simply because the younger society has more evenly distributed income? No, we can't.

To make Hong Kong a better place to live, we must distinguish "inequality of outcomes" from "inequality of opportunities". The Gini Coefficient and any other measurement of income distribution measure the degree of "inequality of outcomes" only. We are barking the wrong tree if we focus on "inequality of outcomes". A communistic society has absolute equality of outcomes. Everyone earns the same level of income. Is it a utopia? Some people might say: "Yes, those poor people contribute to the society just as much as the rich. Let them share the fruit of the economic development." However, the road to hell is paved with good intentions. History tells us that, if we focus on equality of outcome, we won't help the poor at all. Instead, everyone would end up being in poverty.

"Inequality of opportunities" is more important than "inequality of outcomes". That is to ensure that everyone plays in level field.

i will try to assess the inequality of opportunities in Hong Kong in future entries. Before that, we would take a few more steps to clarify the general perceptions and confusions. Next time, i will continue to show why worries about the buoyant unemployment rate and the struggle of rat race are exaggerated.

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