Dire warnings on the perils of minimum wage don't ring true

PUBLISHED : Thursday, 02 September, 2010, 12:00am
UPDATED : Thursday, 02 September, 2010, 12:00am

Supporters of the minimum wage hope that by raising pay rates at the bottom of the social pile, the new law will reduce Hong Kong's income inequality and make our society more equitable. It's a fine idea, but unfortunately there's little evidence that it will work.

Tom Holland

Monitor column, September 1

Okay, okay, boss, I know it's not done. I'm fully aware that Rule No 1 for a columnist says: Thou shalt not pick on thy own troops.

But, boss, I can't find anyone who has stated the case against a minimum wage more cogently than Tom did in the Monitor column on Tuesday, including this rebuttal above of the argument for a minimum wage.

It just so happens, however, that I take the opposite view and I prefer debate against people who debate well.

Supporters of a minimum wage do indeed think it will help to reduce income inequality, but let us remember that this was not the trigger for the decision by Donald and crew to go ahead with the legislation.

They made that choice when faced with hard evidence that elderly toilet cleaners, who should have been allowed to retire, were instead still working long hours every day for a few thousand dollars a month. Donald considered this offensive to a society that likes to think itself civilised, and surely he was right.

It's ironic, in fact, that some of the loudest voices in town against a minimum wage could have avoided it by showing just a tiny little bit of sympathy for the people at the very bottom of the income ladder. But they wouldn't even do that much after Donald warned them a few years ago. They have themselves to blame.

The meat of the argument against a minimum wage, however, is that there is little evidence of its success in reducing income equality and plenty of studies to suggest that the opposite happens. They show that people lose their jobs. The price of not being content with a lower wage is no wage at all.

I am suspicious of these studies. Their focus is invariably too narrow. They demonstrate, for instance, that a minimum wage in the restaurant trade results in lower employment in restaurants. Tom cited the example of there being fewer waiters per diner in Australian restaurants than there are in Hong Kong ones.

I'm sure it's true. It proves nothing, however. The question is whether people who lose jobs in restaurants can then find employment elsewhere. Does a minimum wage cause overall employment to decline in an economy?

Looking at the restaurant trade alone is not enough. What can happen, for instance, and mostly does, is one of two things. Either people eat at home instead of going to restaurants, which creates countervailing employment in the grocery business, or they accept higher restaurant prices, and waiters then spend their higher earnings elsewhere in the economy, which also creates employment. Either way there is no net job loss.

It may mean, as Tom points out, that waiters don't jump to attention quite so fast in Australian restaurants as they do in Hong Kong, but I have my doubts about setting a great store of value on this.

It reminds me of going for a round of golf (I'm an awful player) on a course near Bacolod City in the Philippines several years ago. Each golfer had three attendants: a caddie, an umbrella girl and a golf cart driver.

Yes, it was a treat. They gave me all the attention I could want in exchange for a tip of a few pesos. But I also thought it demeaning to them. There you have the Philippines, sunk in menial labour and servitude. Is this a society we wish to emulate? I don't pride Hong Kong on a ratio of waiters per diner. It is not a worthwhile measure of achievement.

But, in fact, the figures suggest that this ratio is trending down here anyway, even before minimum wage is introduced. This is the general effect of rising prosperity in a society that offers labour mobility. People want to do better for themselves than a lifetime of waiting on tables, and they take the opportunity when it comes. It is how any society moves up the scale of civilisation.

We can stop it from happening, however. We can let restaurateurs dictate our labour policies, open the gates to labour migrants to suppress wages here indefinitely, stand by as income disparity grows to scandalous levels and then wonder why people rate Hong Kong a third world city.

I have one big question to the naysayers on minimum wage. I have raised it before and I still do not have a satisfactory answer. If there is such a direct link between wage scales and employment, why is everyone in Somalia not gainfully employed and all of Switzerland jobless?

I just don't buy the line. Over to you, Tom. Your turn.