Hong Kong’s Minimum Wage: What Impact on Jobs and Pay?

by singaporearmchaircritic

Ominous predictions of a tide of restaurant closings and job loss in Hong Kong after the implementation of a wage floor had fallen flat.

In August 2011, three months after Hong Kong’s Statutory Minimum Wage (SMW) took effect, restaurant operators lamented a shortage of workers. Some had to pay an hourly wage of 30 to 50 Hong Kong dollars, above the wage floor of 28 Hong Kong dollars, to hire dishwashers, kitchen helpers and servers. Despite higher overheads, the number of eateries grew by 500 to 15,000 from the end of 2010 to August 2011. The expansion of fast food conglomerates, in particular, was the most evident. Greater number of vacancies in the industry, moreover, saw fewer takers – on average, there was only one applicant for every three to four job openings.

It seems clear now that industry players’ earlier claims of operational difficulties had been exaggerated in a bid to forestall the SMW’s implementation in May 2011, no mean feat in a city which had long prided itself as the last bastion of laissez-faire capitalism, where adherents and business interests fervently sounded dire warnings against a wage floor, averring that any government interference with market-determined wages would backfire and cost jobs. With such fierce contention, it was only after more than a decade of protracted debate that the SMW finally gained passage in the Hong Kong legislature on 17 July 2010.

In a nutshell, the SMW is structured as follows: The minimum wage is 28 Hong Kong dollars per hour; off-days and mealtime are subject to negotiation between employees and employers; the SMW does not apply to workers who reside in the employer’s household, apprentices or interns, and the self-employed; the SMW also extends to the disabled, who may initiate an assessment of their productivity to determine if they should receive the minimum wage or a pay commensurate with their productivity.

The legislation of a minimum wage has long been encumbered by contradictory findings on its impact. The primary goal of a SMW is to raise the income of the lowest paid on the wage scale and lift the poor out of penury. Yet some critics see the policy as running contrary to its purpose, hurting the poor and low-skilled workers whom it purports to help.

In early days, economists proposed that a minimum wage would cost jobs, especially in a competitive labor market. From the 1980s onwards, economists began to present countervailing empirical evidence showing that the minimum wage has no obvious effect on the level of employment, or that it may even contribute to higher employment.

The experience of different societies also varies. In Australia it was found that a hike in minimum wage might worsen unemployment and too high a rise might even affect employment; in Japan, an increase in minimum wage rate had negative impact on women’s employment; and in the U.S., a rise in minimum wage failed to alleviate poverty. In contrast, Taiwan, France and Britain found that a minimum wage had no apparent negative effect on the labor market.

Hong Kong’s case has lent further support to the positive impact of a wage floor on the labor market. Evidence for this does not just come from restaurant industry.

Just one month after the SMW came into force, the Hong Kong Confederation of Trade Unions estimated that the SMW had increased the pay of about 100,000 workers by an average of 20%. Over 300,000 workers or 11.3% of entire workforce received a pay increment averaging 16.9%.

Higher wages have not cost jobs. Data released by the Hong Kong Census and Statistics Department shows a marked decline in unemployment to 3.2% in June-September 2011, the lowest level since the 2008 financial crisis. Unemployment had fallen in all sectors except manufacturing, which saw a rise to 4.5% in September-November 2011 from 3.3% in March-May 2011. The construction industry witnessed a fall by the largest margin of 1.1%; followed by 0.7% in the import/export trade and wholesale industry, and 0.5% in the retail, accommodation and food services industry.

From May to November 2011, Hong Kong’s labor force grew by 2.7%-3% to reach a historic high of more than 3.7 million persons. Although youth unemployment rose from 16.7% to 19% in the first three months after the SMW came into force, it subsequently fell to 14.1% in September-November 2011. Other age groups – 20-29, 30-39, and 40-49 years old – also saw a dip in unemployment over same period.

All in all, the wage floor seems to have boosted Hong Kongers’ ethos of self-reliance. Its implementation is also timely in the context of the city’s widening wealth gap and spiraling housing prices, which have bred growing animosity towards the rich.

In many societies including Singapore, naysayers have objected to a wage floor in that it is no panacea in reducing poverty, stemming exploitation and relieving the plight of the working poor. They are partially right. But the successful case of Hong Kong shows that outright rejection of a wage floor before conducting further feasibility studies is totally uncalled for.