1. Income Inequality and Distributive Justice in Hong Kong and Mainland China: A Comparative Analysis Xiaogang WU Associate Professor of Social Science Hong Kong University of Science & Technology Hong Kong SAR March 14, 2008

2. I. Introduction

3. Inequality and Equity in Income Distribution Inequality: how large the gap is, usually measured by Gini coefficient, or other similar indicators. Inequality: how large the gap is, usually measured by Gini coefficient, or other similar indicators. Equity: how large the gap should be, normative judgment of the inequality, in which the value system is involved. Equity: how large the gap should be, normative judgment of the inequality, in which the value system is involved. Public debate on income distribution is more directly related to inequity than to inequality. Public debate on income distribution is more directly related to inequity than to inequality.

4. Hong Kong and China in Comparison Income inequality is very high by international standard. Income inequality is very high by international standard. 0.525 (2001) 0.447 (2001)

5. Increasing Income Inequality in Recent Years

6. Public Debate on Inequality Is income inequality too high now? Is income inequality too high now? The Public: YES, and it has caused social discontent and may lead to social unrest.The Public: YES, and it has caused social discontent and may lead to social unrest. Government/liberal economists: it depends on how you calculate it. Gini coefficient as a measure of income inequality has its own limitations.Government/liberal economists: it depends on how you calculate it. Gini coefficient as a measure of income inequality has its own limitations. Nevertheless, it seems that both are doing OK. Society is largely stable even though income disparity is enlarging. Nevertheless, it seems that both are doing OK. Society is largely stable even though income disparity is enlarging. The discontent in Hong Kong is less severe than that in the Mainland, even though income inequality in Hong Kong is higher. The discontent in Hong Kong is less severe than that in the Mainland, even though income inequality in Hong Kong is higher.

7. The Real Question is About Equity not Equality Do Chinese people generally prefer egalitarianism ( 不患寡而患不均 )? How do they view the fairness of income distribution? Do Chinese people generally prefer egalitarianism ( 不患寡而患不均 )? How do they view the fairness of income distribution? Why has income inequality caused more discontent in China than in Hong Kong, both are Chinese societies but with different institutional legacies. Why has income inequality caused more discontent in China than in Hong Kong, both are Chinese societies but with different institutional legacies. Hong Kong: laissez-faire capitalismHong Kong: laissez-faire capitalism China: reforming state socialismChina: reforming state socialism

8. 2. Data and Designed Questions Two survey data sets Two survey data sets Hong Kong: “Social Inequality and Mobility in Hong Kong” (2006-2007). N=4013 (age 18-60).Hong Kong: “Social Inequality and Mobility in Hong Kong” (2006-2007). N=4013 (age 18-60). China: “China General Social Survey, 2005” N= 10,372, age (18+), restricted to 18-60.China: “China General Social Survey, 2005” N= 10,372, age (18+), restricted to 18-60. Both include some comparative questions on the attitude to inequality and fair pay. Both include some comparative questions on the attitude to inequality and fair pay.

9. Questions How much is considered poor and how much is considered rich. How much is considered poor and how much is considered rich. Do Earn/Should Earn Income for listed occupations. If the “do-earn” and “should-earn” are consistent, it is considered “fair.” hence, inequality and equity are empirically differentiable. Do Earn/Should Earn Income for listed occupations. If the “do-earn” and “should-earn” are consistent, it is considered “fair.” hence, inequality and equity are empirically differentiable. Perceptions of opportunities Perceptions of opportunities Political participation (in Hong Kong). Political participation (in Hong Kong).

10. 3. Results

12. Fairness Index: An International Comparison Gini A: Gini coefficients of “do earn income” Gini A: Gini coefficients of “do earn income” Gini E” Gini coefficients of “should earn income” Gini E” Gini coefficients of “should earn income” Fairness of inequality: GiniE/GiniA Fairness of inequality: GiniE/GiniA The “fairness index” are also available from other countries based on the data collected by ISSP. The “fairness index” are also available from other countries based on the data collected by ISSP.

14. Findings Respondents in both Hong Kong and Mainland show a very high degree of legitimate inequality. Respondents in both Hong Kong and Mainland show a very high degree of legitimate inequality. Why? Why? Hong Kong is perceived as “the land of opportunity.”Hong Kong is perceived as “the land of opportunity.” In China, enlarging inequality has been perceived as the “Necessary Evil” to improve efficiency in economic reform (Li 2002). China’s rapid economic growth in the past few decades has also created a perception of new opportunities for those who have lagged behind.In China, enlarging inequality has been perceived as the “Necessary Evil” to improve efficiency in economic reform (Li 2002). China’s rapid economic growth in the past few decades has also created a perception of new opportunities for those who have lagged behind.

16. Perception of Opportunities and Fairness Index In both Hong Kong and China, if people favor more fair income distribution, they are more likely to agree to tax the rich to help the poor and less likely to agree with statement related to equal opportunities and merit-based competition. In both Hong Kong and China, if people favor more fair income distribution, they are more likely to agree to tax the rich to help the poor and less likely to agree with statement related to equal opportunities and merit-based competition. The investigation of the relationship between the distributive fairness index and answers to the above questions suggest that the constructed fairness index is valid. The investigation of the relationship between the distributive fairness index and answers to the above questions suggest that the constructed fairness index is valid.

17. Political Implications for Pay Equity People’s perception may not always reflect the actual degree of income inequality, and this perception, in contrast to their normative criteria, will yield a sense of justice/injustice leading to acceptance, frustration, anger, or further actions. People’s perception may not always reflect the actual degree of income inequality, and this perception, in contrast to their normative criteria, will yield a sense of justice/injustice leading to acceptance, frustration, anger, or further actions. The political implications of the distributive justice: if people feel more unfair towards income distribution, they are more likely to express their dissatisfaction through political action. The political implications of the distributive justice: if people feel more unfair towards income distribution, they are more likely to express their dissatisfaction through political action. In Hong Kong … In Hong Kong …

20. Summary and Conclusions A different approach to examine the rising income inequality A different approach to examine the rising income inequality Distinction between equity and equality, and compares people’s attitudes to inequality and perception of opportunities. Distinction between equity and equality, and compares people’s attitudes to inequality and perception of opportunities. The results has refuted the old belief from that Chinese people favor absolute egalitarianism. Instead, in both societies the tolerance of income inequality is high. The results has refuted the old belief from that Chinese people favor absolute egalitarianism. Instead, in both societies the tolerance of income inequality is high.

21. Comparing “Do earn” and “Should earn” Income People in Hong Kong believe that the pay is fair in general: each occupation deserves what it is paid except for workers of low-status occupations, who are underpaid, and senior government officials who are slightly over-paid. People in Hong Kong believe that the pay is fair in general: each occupation deserves what it is paid except for workers of low-status occupations, who are underpaid, and senior government officials who are slightly over-paid. In China, although people believe that farmers and workers are underpaid, they also think that senior government officials and executives in large state-owned companies are over-paid by a high rate. In China, although people believe that farmers and workers are underpaid, they also think that senior government officials and executives in large state-owned companies are over-paid by a high rate. This may explain why income inequality has caused higher degree of unfairness and wider social discontent. This may explain why income inequality has caused higher degree of unfairness and wider social discontent.

22. International Comparison Compared to most other countries, however, both Hong Kong and Mainland respondents show very high rate of normative acceptance of income inequality. People do have recognized the existing high income inequality in their societies. On the other hand, such high inequality is largely normatively acceptable and considered “fair”. Compared to most other countries, however, both Hong Kong and Mainland respondents show very high rate of normative acceptance of income inequality. People do have recognized the existing high income inequality in their societies. On the other hand, such high inequality is largely normatively acceptable and considered “fair”.

23. Related to Perceived Opportunities Both Hong Kong and Mainland respondents are surprisingly optimistic towards the opportunities for social mobility, which are positively related to their sense of fairness. Both Hong Kong and Mainland respondents are surprisingly optimistic towards the opportunities for social mobility, which are positively related to their sense of fairness. The distributive justice also affects the support for government tax policies and evaluation of government performance in addressing the problem of large income inequality. The distributive justice also affects the support for government tax policies and evaluation of government performance in addressing the problem of large income inequality.

24. Political Implications In Hong Kong, if people feel more unfair in income distribution, they are more likely to vote for the opposition party (pro-democracy camp) as a way to express discontent, although they do not necessarily believe that the opposition party can stand for their interests, and they are more likely to participate in the public protest in July 1st, 2003. In Hong Kong, if people feel more unfair in income distribution, they are more likely to vote for the opposition party (pro-democracy camp) as a way to express discontent, although they do not necessarily believe that the opposition party can stand for their interests, and they are more likely to participate in the public protest in July 1st, 2003. Thus, recognizing the mechanisms between inequality, equity, and its social, psychological and political consequences is important in tackling the problems of rising poverty and inequality. Thus, recognizing the mechanisms between inequality, equity, and its social, psychological and political consequences is important in tackling the problems of rising poverty and inequality.

25. Thank You!