The Effects of Different Types of Welfare Subsidies on Work Incentive and Mental Well-Being in Hong Kong

Abstract

East Asian welfare states have been described as “productivist” where social policy is subordinated to economic objective. Hong Kong is classified as a facilitative welfare regime that is “something in common with Esping-Andersen’ liberal type” in which social rights are minimal and market is prioritised. However, in the recent years, the government of Hong Kong began to play a more active role in social welfare and launched several cash transfer programs. Evidence on the impacts of these welfare subsidies on the recipients’ behaviour and well-being is sparse. This study aims at examining the effects of five types of welfare subsidies on the recipients’ work incentive and mental well-being. The examination of outcomes on labour market and well-being allows policymakers to understand the full range of costs and benefits of welfare subsidies. The five types of welfare subsidies including the means-tested Comprehensive Social Security Assistance (CSSA) that aims at providing a safety net for those who cannot support themselves financially; the means-tested Work Incentive Transport Subsidy (WITS) aims at reducing low-income earner’s travelling cost to and from work; education subsidy that provides financial assistance to needy students; medical subsidy that provides vulnerable groups (low-income, chronically ill parents and elderly patients) effective protection from medical financial burden; the non-means-tested Social Security Allowance (SSA) aims at meeting special needs arising from disability or old-age. We used data from the first and second wave of Hong Kong Panel Survey for Poverty Alleviation (HKPSPA) conducted in 2015 and 2017, respectively. This study examined how welfare status between the two waves affected the recipients’ work incentive and mental well-being. Work incentive was measured by the number and share of the employed persons in the household, as well as the pre-transfer household income. Mental health was measured by the scale of Chinese Health Questionnaire (CHQ). To rule out pre-existing difference between welfare recipients and non-recipients, we used difference-in-difference and propensity score matching to compare the changes in outcome over time. The results showed that CSSA reduced the pre-transfer household income and improved the mental well-being of the recipients. WITS increased both the number and ratio of employed persons in the household, whereas education subsidy reduced the pre-transfer household income. We found no evidence that medical subsidy and SSA affected work incentive or mental well-being of the recipients. Our findings suggest that while CSSA disincentives the work, it improves the mental well-being of the recipients, probably through reducing their financial distress. By reducing low-income earner’s travelling cost to and from work, WITS increases the work incentive of its recipients. Although education subsidy reduces the recipient’s household pre-transfer income, probably due to the reduction in working hours, it may lead to more balance between work and family among low-income households.