Intergenerational Mobility in Hong Kong, 1976-2016

Hong Kong’s laissez-faire economic model spurred rapid growth in the second half of the 20th century, but it also led to rising inequality, placing it among the highest in developed economies. As such, Hong Kong offers a unique case to study inequality and mobility in a society with minimal government intervention. According to the Great Gatsby curve, high inequality is linked to low mobility. This study investigates whether Hong Kong is undergoing a decline in absolute income mobility across generations.

By applying Chetty et al., (2017)’s copula methodology to the Hong Kong Population Census Sample Dataset, Li Yang, Junpeng Zhang, and Zhejin Zhao calculated the absolute income mobility level in Hong Kong from 1976 to 2016 and decomposed the result to identify the factors behind the decline in mobility.

Key findings:

• Absolute income mobility (AIM) in Hong Kong declined from approximately 85% in the 1976 cohort to 55% in the 1996 cohort. These results remain robust across different synthetic and empirical copulas. AIM measured at specific ages between 30 and 50 closely aligns with the overall population results, suggesting that the year of measurement is more crucial than the age group in determining mobility rates.
• The trend of absolute mobility in Hong Kong closely resembles that of other developed economies such as the United States, Japan, and France. However, the disparity lies in the timing of the trend, with Hong Kong exhibiting a 15 to 20-year lag behind Japan and France and a 25 to 30-year lag behind the United States. Moreover, the decline in AIM in Hong Kong is more pronounced than in the U.S., resembling the sharper decline observed in Japan.
• In terms of the driving factor of the decline of AIM, the decline in AIM in Hong Kong is primarily due to slower income growth, while the growing income inequality has little to no impact on the AIM outcome. This pattern is similar to that observed in European countries and Canada, in contrast to the situation in the United States.
• Slow GDP growth primarily impacts wage income mobility, while rising income inequality drives the decline in capital and business income mobility. Since wage income makes up the majority of total income in our census sample, the slow income growth is the main factor behind the overall decline in absolute income mobility.
• Additionally, education has the opposite effect of slow income growth, significantly mitigating the decline in AIM, particularly for the 1991 cohort, during the period of rapid expansion in Hong Kong’s tertiary education. In contrast, factors such as occupation, industry, and place of birth have minimal impact on shaping the mobility trend, with education playing a far more significant role.

AUTHORS

• Li Yang, ZEW – Leibniz Centre for European Economic Research, Paris School of Economics, World Inequality Lab
• Junpeng Zhang, Paris School of Economics
• Zhejin Zhao, Harbin Institute of Technology (Shenzhen)