A “Latte Index” – A Reflection of Income Disparity and Social Mobility

By August 2, 2015Events, Seminar

Date: May 8 2015
Feature Speaker: Professor Paul YIP

The latte index measures how many lattes can be brought by an hour of minimum wage. It somehow reflects the purchasing power and quality of life of an ordinary worker. We shall illustrate the latte index for Hong Kong and other countries and discuss its implications. The income disparity and social mobility especially among the youth will be discussed.

This index is measured by how many cup of latte can be brought by an hour of minimum wage in the area. Take HK and Australia as examples, an hour of minimum wage could brought about 1 and 3 lattes respectively.

When we take HK as a reference, some cities, such as Zurich and San Francisco, are having a higher minimum wage to latte price ratio. On the other hand, some counties worse off. E.g, the minimum wage is lower in Beijing but their latte price is higher.

When calculate the cup of latte that an hour minimum wage can be brought, the high income developed counties tend to have a higher ratio. They could brought more than 1 latte, even 3 lattes by an hour of minimum wage.

Latte Index and GINI coefficient

GINI coefficient measure the income inequality of an area. The higher index indicate the severe inequality income of citizen. The latte index is correlated with the GINI coefficient, the lower the latte index, the higher the GINI coefficient.

Latte Index and Ranking of happiness  

HK rank 72 at the Rank of happiness 2012 -2014. Happiness score and Latte index is correlated that the happiness score is higher when Latte index is higher.

Phenomenon

Medial monthly household income from 1991 to 2011

In 1991 to 2001, the medial monthly household income had almost double; however, there is only 12% increased within 2001 to 2011.

However, the growth of economic did not share by whole population of HK evenly. In 1991 to 2001, everyone’s monthly income had increased. The top 10% even have 9 times increased more, but the bottom 10% earn just earn double more. At the same period, property price increased about 30% in that period.

In 2001 to 2011, the top 10% still enjoy the quite a lot of growth in monthly income but majority others did not change much. However, the property price index raised 130% in this period.

Population profiles by industry and occupation from 1991 to 2011

The industry and occupation structure are changing. In terms of occupation, more individual employed in high rank occupation, like manager, profession, and associate profession. It is not surprise as more people in HK received territory education or other professional training. The human capital in HK is improving. However, this changing has not contribute to the general improvement of quality of life.

Increase of income by industry from 1991 to 2011

In 1991 to 2001, all industries enjoy great increase in income. However, in 2001 to 2011, the increase in income of every industry slowdown, some industries like transport storage and communication even experienced decreased in income.

The income disparity did not only occur between different industries, but within the industry. For example, in the wholesale, retail and import/export trades, restaurants and hotels industry, the highest 10% income earner had improvement in 2001 to 2011, but the lowest 10% did not earn much. So, there is a double hit that make the low income individual trap in the poverty. Similar phenomenon could be observed in other industries, the top 30% income earner gain more within 1991 to 2011 but the bottom 30% did not change much. So, we have to concern the majority of individual who have low bargaining power and could not benefit from the economic progress.

Disparity of salary among civil servants

Government also contribute to the salary disparity in civil servants industry. Although all civil servants increase the same percentage of income (for example, 5%), the actual amount of salary increases are depended on the original salary. So, the salary range enlarge gradually. This illustrate how the salary structure itself enlarge salary disparity. Among different department/industry within civil servants, most of them had wider salary range in 2014 compared with 1996 except ICAC.

Narrow Tax base

In HK, 14% of taxpayers pay over 80% of salary tax. And 1% of corporations contributed to over 60% of profit tax. May be others are not able to pay the tax because of low income. How could this distorted structure form and maintain?

Poverty

Who and How?

There are 4 groups of people who are easily fall in poverty, namely, elderly, young people, single parent families and working poor. The poverty mitigation measures should divided into Individual level, community level, and population level.

Where, What and Why?

Poverty in Hong Kong varies in districts. The social-demographic characteristics and service deprivation characteristics are unique in different “Poverty Clusters” in HK. For example, in Yuen Long, many single parent, child, and unemployed aggregated. In Tung Chung, transport, physical activity and sport facilities are deprived. Some areas being over provide certain kind of services while other areas being under provide.

Some cost have to be paid in this uneven distribution of services. In terms of physical health, the mortality rate of poverty cluster are higher than other areas. In terms of mental health, it show the same trend. The suicide risk is higher in the poverty cluster than other areas.

What are the challenges and difficulties?

1st Challenges – Ageing

With the low fertility rate, long life expectancy, and baby bummer from 50s and 60s, the population tsunami is occurring. The whole population structure is changing. We should concern the development of health care, social service, and universal pension. Who is going to pay for them?

2nd Challenge – Low Fertility

In HK, some families rather have a pet than baby, the household size decreased gradually. The environment is not family-friendly for raising a baby, working lady have to make a choice, whether have a baby or keep working?  A fertility rate glasses ceiling exist in future projection. We should concern why the fertility rate in HK was lower than other areas like Singapore, Japan, Australia, and USA?

3rd Challenge – Young people

HK consist of mixed batch of young people. In the society, especially the working environment, there are many older people on top of them. The unemployment rate is high among youth. We should pay special attention on those associate degree holder. In HK, holding a university degree or not is critical factor of social mobility. However, there are many other routes or options for non-academic orientated youth in other countries. Nowadays in HK, the ladder of social and economic mobility is much difficult to climb than in past.

4th Challenges – Shrinking Labour Force

There is a continuous downward trend in working population size but an upward trend in the actual population size. How could our society sustain? The productivity have to be raised. We may consider some options like migration, talent scheme, and release women workforce.

Better choice of job

Some jobs in HK are harsh, danger, and low paid. Yet, those jobs provide those employee chances to earn the living. However, we have to reflect about that why they could not have a better choice of job? Why they keep doing the low skill set job rather than high skill job? Those low skill job actually could replace by machines. The answer probably related to the low labour cost.

The myth of outsourcing

Take the cleaner as an example, government spend $10,000 for hiring each cleaner before outsourcing. After out sourcing, each cleaner cost the government $9,000 (saving $1,000), but each cleaner may only get $7,000 (after implement the minimum wage). In fact, the poor are being rob and government did not save much. This outsourcing also happen in some professional job, like social worker. Government worsen the working poor problem in one way. On the other hand, they investigate some measures like work incentive transport subsidy aim at mitigate the problem. It is a strange phenomenon that government create problem for herself.

Strategic issue to mitigating poverty

There are few issues we could be focus on, namely, empower human capital through education and skill training, maintain a population of high quality, diversity economic portfolio, investing in R&D, increase in productivity by work smarter but not longer, as well as, promote physical and mental wellbeing.

Migration

Everyone complaint about migration in recent years. However, if there is no migration, the population structure will be very difficult to sustain in HK. Many problems may occur in future. For example, school may need to shut down due to lack of students in coming 20 years.

Family friendly working environment

It is not only an individual choice to have a baby, but the community response is a factor also. If everyone choose not to give birth, the dependency ratio will be high in future. This reason justify the government’s action to promote the family friendly environment. In fact, government had increased the child allowance for family to show support.

Japan experience

When they dealing with ageing problem, they turn residential area to become elderly centre rather than build an elderly centre. Thus, the stigmatized effect is lessen.

Public health approach

The poverty problem cannot be solved even government increased double budget on it. The problem should be solved fundamentally. That is, we could adopt the public health approach, which aim at reduce the risk of general public. By using same amount of budget, the public health approach may be more cost-effective.

Take home message

  • Outsource the work but not outsource the responsibility.
  • Invest in education, skills and training for the youth is best insurance cover for the future.
  • How the vulnerable to live in any society is a reflection of how civilized we are.
  • A society with less inequality is a happier society.

We all can make a difference!”