Family Changes and Income Inequality under Globalization: The Case of Hong Kong

1. Family Changes and Income Inequality under Globalization:The Case of Hong Kong Stephen WK ChiuDepartment of SociologyThe Chinese University of Hong Kong Photo: Alex Chung

2. The Problem • Increased by 10.3%

3. The Problem

4. Hong Kong has become one of the most unequal societies in the developed world.

5. Economic Explanation • Economists explain rising inequality by Human Capital Theory and Trade Theory • Globalization and technological development the primary causes

6. Economic Explanation • In advanced economies, globalization increases return to high level human capital and reduces return to low level human capital through trade with less developed labour-surplus economy. • Technological change, especially in IT, increases return to skilled worker by increasing the demand.

7. Sociological Explanation • Saskia Sassen’s Global City Thesis

8. Sociological Explanation • Globalization led to the rise of global cities with dispersal of production and centralization of control. • Global cities are command centres of the global economy with a high concentration of producer services (banking, advertising, accounting, law) controlling a dispersed network of production. • Primary global cities: New York, London, Tokyo. • Secondary global cities: Hong Kong, Singapore, Frankfurt, Sao Paulo, Chicago etc.

9. Sociological Explanation • Global city development leads to social polarization: • “1) the growing inequality in the profit-making capacities of different economic sectors and in the earning capacities of different types of workers; 2) the polarization tendencies embedded in the organization of service industries and the casualization of the employment relation; and 3) the production of urban marginality, particularly as a result of new structural processes of economic growth rather than those producing marginality through abandonment.” (Sassen 1998: 137)

10. Sociological Explanation • Manufacturing generates a large number of middle-income jobs. • Services typically consist of high income and low income employees with few in the middle. Investment bankers vs the janitors. • Therefore globalization transforms the occupational structure, leading to polarization of income.

11. Criticisms on the Polarization Thesis • First, there are doubts whetherthe polarizing trend in occupational and income structure is really observable in global cities and that it ignores the process of professionalization and the growth of the new middle class in the global cities (Hamnett 1994, 1996; Baum 1999). • Second, the concept of polarization as used in the global city literature by Sassen is also found to be imprecise, whether it points to merely “relative” polarization in the sense of widening income differentials or “absolute” polarization leading to the growth in both the top and bottom ends but a shrinking middle (Hamnett 1994; Vaattovaara and Kortteinen 2003).

12. Criticisms on the Polarization Thesis • Hamnett’s critique of the concept of polarization in the global city thesis boils down to the danger in the thesis to mask the mediating role of local factors in the social outcomes and urges the necessity to “conceptually unpack the term polarization and to examine the extent to which different forms of polarization are found in different contexts and to theorise the reasons for such variations” (Hamnett 1996: 1408).

13. My objective therefore is to look at local factors that mediating between global changes as well as the social factors interacting with economic changes.

14. One problem in unit of analysis in income inequality: • Individual or household? • Key Hypothesis: • Household formation strategies affect income inequality significantly • Wives’ rising income and labour force participation increased overall household income inequality

15. Data: Public Use Dataset of Population Census 1991 and 2001. • Definition of household income: primary and secondary income excluding domestic helpers. • Adjusted vs unadjusted income by household size.

16. Basic statistical tool: decomposition analysis of coefficient of variation • where Sk = μk/ (μh+ μw+ μo), CVk is the coefficient of variation for income component k, ρkj is the correlation between a pair of income components, Sk is the share of total family income form component k, and μk is the mean of income from component k. In the analysis of the relative contribution of different sources in household income, the subscript h denotes husbands’ income; w denotes wives; income and o denotes residual income from other sources.

17. In simple terms: If : • I = H + W (I = household income, H = husband income, W = wife income) Then: • The dispersal of I will be greater if: • H and W are highly correlated, and vice versa. • Also important is the share of each source of income in the total household income • as well as the level of income of each marital partner.

18. Table 4A: Household Income by Sources, 1991 and 2001

19. Table 4B: Household Income by Sources, 1991 and 2001

20. Table 6: Decompositions of Change in Income Inequality by Income Source, 1991 and 2001

21. Next I assess the impact of changes in income sources among households by comparing the observed distribution with a reference distribution. The reference distribution is constructed by assuming three counterfactual conditions in order to evaluate whether wives’ income had a disequalizing effect on the income distribution: • Counterfactual 1: all wives did not work and had zero income. • Counterfactual 2: the mean and dispersion of wives’ income had not changed over the period in question. • Counterfactual 3: the mean, dispersion and correlation of wives’ income with other sources had not changed over the period in question.

22. Table 7: The Impacts of Changes in Wives’ Earnings under Different Counterfactual Conditions for Married Couples

23. Table 8: The Impacts of Changes in Wives’ Earnings under Different Counterfactual Conditions for All Households

24. The Broader Picture • Expansion in Higher Education • Increase in female enrolment in higher education • Girls outnumbered boys in tertiary institutions in 2001, accounting for 54.4% of all students in state-funded programmes. • The proportion of women with tertiary education in the population also increased from 9.4% in 1991 to 15.2% in 2001 • The overall labour force participation rate among all women rose moderately from 49.5% to 51.6% during the same period. The proportion of wives with tertiary education who were working also rose from 68.5% in 1991 to 71.1% in 2001.

25. The Broader Picture • The percentage of households with an economically-active wife increased moderately from 30.9% of all households in 1991 to 32.7% in 2001. • Rising income level of working women because rising producer services offer high income jobs to women • Other institutional factors also help: foreign domestic helpers “released” middle class wives from childcaring.

26. Higher correlation between husband and wives’ income, from 0.333 in 1991 to 0.382 in 2001 • The reason: educational homogamy

28. Conclusion • Economic factors contributed to widening individual inequality but socio-demographic factors further accentuated household inequality • As households typically pool together resources in consumption and human capital investment (eg education for children), inter-household inequality is important in determining life chances • Institutions and policies encouraging the working of women in low-income households deserved more consideration