Economy | Growth in incomes outstrips pace of inflation, according to gov’t statistics

As in previous election years in Macau, the next few months leading up to September’s Legislative Assembly election are likely to be dominated by calls from candidate lawmakers for measures to urgently raise local living standards.

The narrative of declining living standards is repeated every few months when hundreds of people take to the streets for demonstrations organized by workers’ associations. Participants demand salary increases in line with, or exceeding, the rate of inflation, claiming that the city’s rapid development of the gaming and tourism industries has pushed consumer prices beyond the reach of residents.

The daunting prospect of trying to quantify living standards has always stumped economists. From a subjective perspective, living standards are discussed in a fact-based manner, although it is difficult to use precise terms to determine whether standards have improved.

Traditionally, economists resort to measures such as gross domestic product per capita after adjusting for inflation, but they may also consider the distribution of wealth, the level of poverty, employment, job security and changes in the quality of goods and services. Outside the economic sphere, the quality of the environment can also contribute to living standards, as can high school completion rates, life expectancy at birth, the prevalence of crime, happiness and many other factors.

But when workers’ associations and lawmakers take to the streets and campaign trails, they tend to refer to two particular economic indicators above all else: mean or median incomes, and consumer prices.

The question they inadvertently raise: Are local workers better or worse off today, compared to the period immediately before the gaming liberalization of the early 2000s?

The answer on the surface is better.

The median wage in Macau last year stood at MOP15,000 per month, according to data from the Statistics and Census Service (DSEC). That’s up from about MOP5,000, which held constant for most of the decade between 1995 and 2005.

As for inflation, statisticians in Macau normally use the Consumer Price Index (CPI) to record price changes. CPI measures the variance in prices paid by typical consumers for most goods and services, excluding property.

Between 1998 and 2004, the CPI in Macau was in decline, indicating deflationary pressures. From early 2004, inflation kicked in, continuing to push up prices until the present day.

According to data amalgamated from DSEC, the CPI index stood at around 109 in January this year, up by 9 points from its base in early 2014 (100). Applying the change in prices retrospectively, the CPI index for January 2004 was around 61, meaning that prices in January 2017 (excluding property) were roughly 80 percent higher than in January 2004.

In comparing this with the city’s median wage, which tripled in the same period, local workers are generally much better off today in terms of basic, economic living standards than at the start of the gaming liberalization.

However, local economist José Sales Marques expressed skepticism over the 80 percent rise in consumer prices recorded by DSEC.

“They [the government] changed the means of calculation for inflation over the past few years,” he told the Times.

“I have read reports that suggest the rate of inflation may be much higher.”

Some workers’ associations in the territory claim that many local workers are still struggling. On average, these local workers earn significantly higher wages than the average non-local worker, which raises the question of how accurately median wage statistics reflect life on the ground for many MSAR residents.

Median wages, or wages that are “in the middle”, are often substantially lower than the average income. What they actually denote is that half of those working in the territory earned below the monthly median of MOP15,000.

“We have to be aware that what we are talking about is average income. It covers the disparity of income between the highest and lowest earners,” Marques said. “Just look at the minimum wage for people in security and cleaning and other building management [services], compared to the few that have very high incomes. This disparity is very significant.”

An article published earlier this year in British newspaper The Guardian claimed to reveal a darker side of Macau where abject poverty exists.

The article reminded readers that “the lowest-paid 10 percent struggle in one of the world’s wealthiest cities” and cited Caritas Macau as saying that these individuals lived in poverty.

The article, which came under fire from netizens, claimed that a Macau resident who earns more than MOP10,000 per month and does not need to pay rent spent all of her salary supporting her two children’s medical studies and her own living expenses.

On the other hand, the median wage also indicates that half of those employed earned more than this level.

The average, or mean wage, can often be substantially higher than the median wage, depending on how wealth is distributed in a particular society.

A useful measure of wealth distribution is the Gini coefficient, where a lower value indicates a more equal distribution. The coefficient was 0.43 in Macau in 1998 but increased to 0.48 in 2006, according to a BBC Chinese report. In recent official government reports, the figure is said to have fallen as low as 0.35.

A study by UM students, which was submitted to DSEC, showed that the gap between the median and the estimated mean income had increased fourfold between 1992 and 2008.

The students concluded that “a small proportion of the rich holding a large portion of fortune in society [was] pushing up the average income level.”

This conforms with recent statistics published by DSEC, which show the gross national income per capita – namely, the total income of those in Macau divided by its population – was around MOP520,000 in 2015, or approximately MOP43,000 per month.

There are also other considerations which mean that the “on-the-ground” incomes of many residents may be higher than MOP15,000 per month.

For example, some employers offer 13- or 14-month contracts and other performance-related and discretionary bonuses, and there is also the annual handout from the MSAR government.

Also worth mentioning are Macau’s high and stable employment levels. Since the gaming liberalization, unemployment in Macau has become a thing of the past, meaning that almost all unskilled workers in the city are employed in one line of work or another.

According to a popular macroeconomic theory known as the Phillips Curve, there is a trade-
off within an economy between unemployment and inflation, whereby low levels of unemployment cause wages and prices to rise, since the high demand for labor cannot be met by an inadequate supply.

The unemployment rate in 2000 was around 6.8 percent, and has stood virtually unchanged at the “optimum” 2 percent since 2012. Therefore, regardless of the average standard of living, the “floor” living standards for the lowest earners in Macau are probably higher today.

Regarding the Phillips Curve, Marques said: “Foreign workers that are imported into Macau will mean that the salaries of employees within certain sectors will rise. This will also drive [inflation] and I think that prices will increase faster than incomes.”

Nevertheless, Marques believes that workers are slightly better off today than they were before the gaming liberalization.

“Overall, I would say that yes, the average worker is a bit better off. However, for an economy that generates such high GDP [gross domestic product] per capita, they should be a lot better off,” he said.

expenditure in macau broken down

SOME STUDIES have shown that the proportion of people’s income spent on housing in Macau is slightly more than one-third (37.7 percent), while expenditure on transportation, clothing, restaurant dining and sports and leisure account for about another third. The data comes from Numbeo.com, a crowd-sourced global database on reported consumer prices for cities around the world. For the Macau data portal, there have been over 500 entries in the past 18 months from 56 different contributors. It was last updated in May 2017.