(This essay was published in South China Morning Post on 25 January 2017.)
For many years, Oxfam has advocated pro-poor policies through its research, campaigns, public education, and support for local poverty programs. In Hong Kong, it has made good progress, evident in the establishment of the official poverty line, the enforcement of the minimum wage and a Low-income Working Family Allowance (LIFA), all of which were advocated by Oxfam.
Some of Oxfam’s services are certainly very valuable, but its research is unfortunately wrong-headed. This makes its influence on policy and public understanding quite worrying.
For example, it advocated raising minimum wages to help the poor on the presumption that individuals with low wages are poor. But figures from the General Household Survey figures for 2012-Q2 (immediately following implementation of the minimum wage law) show that 80.5% of minimum wage workers were from households with incomes above the 20th percentile level, which is roughly the official poverty line – and 36.4% were above the 50th percentile.
There is a false presumption here that low wage individuals must come from low-income households – something other countries, such as the US, the UK and Canada, have also found to be untrue.
Why doesn’t Oxfam examine such evidence before mounting its advocacy campaigns?
Oxfam also pushed the government to adopt the official poverty as one half of the median household income level. But drawing such a line guarantees that poverty will never be alleviated, much less eliminated.
In contrast, the UN and World Bank adopt an absolute level of income in defining poverty, not a relative level that increases as standards of living rise due to increasing productivity.
To see the absurdity of relying on relative income, consider that the overall household poverty rate rose from 11.5% to 18.5% from 1985-2015, mainly because of the rising share from 14.8% to 23.8% of elderly households , who were mostly not working and had no or very low incomes.
In contrast, poverty rates among economically active working age households were remarkably stable, averaging around 9.4%. The main deviation from this was the growing share of divorced households, which rose from 1.7% in 1985 to 9.1% in 2015 and were mainly from low-income households below the poverty line. There was also an influx of less-skilled women workers, mostly recent immigrants, into the low-income end of the labor market. Poverty alleviation would do better to focus on these changing patterns of household formation and breakdown.
Oxfam also advocated the LIFA, which was launched last year. This is a refined variation of economist Milton Friedman’s proposal to introduce a negative income tax and help low-income households with direct cash awards.
Before its launch, 270,000 households were estimated to be below the poverty line after deducting cash and in-kind benefits. Yet only around 31,800 households applied for the LIFA Scheme,of which 20,633 were approved.
Why had the estimates so grossly missed the mark?
Oxfam surmised in their Hong Kong Poverty Report 2011-15 that: “The low application rate is likely due to the harsh criteria, complicated application procedures, and the lack of language support to ethnic minority families.” But ten times is far too large a gap to blame on teething difficulties.
The problem with the poverty line approach is that it is easy to fall into the trap of thinking the household’s income at any moment in time will remain relatively stable over time. This may not be the case at all among low-income households.
Sociologists Mark Rank, Thomas Hirschl, and Kirk Foster showed in their book Chasing the American Dream that Americans aged 25-60 move up and down the income scale during their working lives: a whopping 73% would spend a year or more in the top 20% of the income distribution, and 40% in poverty.
If income in any particular year is transitory, it is highly likely many households near but below the official poverty line may have little interest in applying for LIFA if it is the result of a transitory downward fluctuation.
I believe it is better to say such households are in near-poverty. And they may well make up one-third of the population. They lack employable skills in high-skilled jobs and cannot afford the exorbitant downpayment to puchase a mini-sized home.
The plight of near-poverty households needs to be better addressed in the next five years. Housing ownership will play a big part in the immediate solution and skills investment in the longer term.
Defining poverty by income alone has many limitations, especially monthly income in any one year. Poverty is a multidimensional problem and is not amenable to quick fixes. Oxfam does fabulous work in helping the poor and disadvantaged in many countries, and in Hong Kong. Wandering into policy is not its forte.