Income and Wealth Inequality in Hong Kong, 1981-2020: The Rise of Pluto-Communism?

In this paper, Thomas Piketty and Li Yang combine national accounts, household surveys, fiscal data, wealth rankings and election polls, in order to provide a comprehensive analysis of the evolution of income and wealth inequality in Hong Kong, as well as its impact on political cleavages over the 1981-2020 period. Their main findings are twofold. First, they find a very large rise in both income and wealth inequality in Hong Kong over the last four decades. Second, based on the latest opinion poll data, they provide evidence suggesting that business elites, who carry disproportionate weight in Hong Kong’s Legislative Council, are more likely to vote for pro-establishment camp to ensure that policies that are passed protect their political and economic interests. They argue that the unique alliance of government and business elites in a partial democratic political system is the institutional root of Hong Kong’s rising inequality and political cleavages.

Key-findings

• Top 1% earners now receive a much larger fraction of the total wage bill than bottom 50% earners after the Handover of Hong Kong, while the opposite was true in pre-Handover Hong Kong.
• In pre-Handover Hong Kong (1981-1996), the changing pattern of education structure and wage premia, and the transformation of industrial structure from manufacturing sector to non-manufacturing sector (finance and service) were the major driving forces for the rise of wage inequality, while in the post-Handover period (1997-2018), the latter factor becomes the only driver for the rise of wage inequality.
• The capital share and the top wealth share (normalized by national income) has raised dramatically since 2000.
• Hong Kong’s wealth concentration level appears to be one of the highest in the world. If we compare billionaires’ wealth or top 0,001% wealth to national income, then Hong Kong is far above all other countries in the world. If we express top 0,001% wealth as a fraction of total wealth (which appears to be relatively high as compared to national income in Hong Kong), then the lower bound of Hong Kong’s top 0,001% wealth share is 11.2% in 2018, which is even higher than the wealth concentration level in Russia, and much higher than the concentration level in the USA or China.
• The business elites (the upper class) are more likely to vote for pro-establishment parties as a means of ensuring that policies are enacted that will protect their political and economic interests. Additionally, political cleavages in Hong Kong have widened since the 2019 Hong Kong protests.

Policy Recommendations

• Improve data transparency, in particular detailed data on household wealth and non-labor income
• Broaden the city’s tax structure (i.e. Inheritance tax, tax on wealth)
• Increase land supply for housing to reduce housing price

Figure: Real growth rate of wage income in Hong Kong

This figure demonstrates the real growth rate of wage income per adult in Hong Kong.

Authors

• Thomas Piketty: EHESS and Paris School of Economics
• Li Yang: Paris School of Economics and INSEAD. li.yang@psemail.eu

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