• Thu
  • Aug 21, 2014
  • Updated: 9:25am

The real prize of a wage rise is lower jobless rate

PUBLISHED : Tuesday, 01 May, 2012, 12:00am
UPDATED : Tuesday, 01 May, 2012, 12:00am

'When we hear unions promoting a fight for HK$33 or HK$35 [hourly wage], I would like to ask if nowadays there is any sort of job that would see an 18 per cent increase every two years.'

Stanley Lau, Federation of HK Industries
SCMP, April 30

Well, Mr Lau, there are, in fact, quite a lot of them. According to our Census and Statistics Department, about one-fifth of the non-supervisory workforce enjoyed wage increases of more than 18 per cent over the last two years.

Specifically, wage increases at these levels were seen in manufacturing, hotels and restaurants, along with professional, business and personal services.

And now, Mr Lau, allow me to anticipate your retort. I haven't asked you, but this is certainly what the large majority of your colleagues would say: 'Yeah, and that's the minimum wage law at work. These people wouldn't have had it otherwise.

'We can't really afford it and this economy is going to pay the price for minimum wage sooner or later.'

I am not so sure. I think the evidence clearly points to something else happening here, and the chart below shows it beautifully.

There is an exact inverse correlation between the unemployment rate and wage increases. When one goes up, the other goes down, and vice versa.

We enjoy a very low unemployment rate at the moment. In fact, given the social security now available to people who are repelled by the menial jobs they are offered at the low end of the job market, our 3.4 per cent unemployment rate is effectively full employment.

It should be therefore be no surprise that the laws of supply and demand have pushed up wages in this environment.

The minimum wage was introduced at a time that natural causes themselves propelled wage increases to double-digit figures.

And if wages here are in any way out of line with comparable economies, we can say they are lower than they might be.

On a rough comparative measure, our gross domestic product per capita is about the same as Britain's, at present exchange rates. But average wages in Britain are still two times as high. A comparison with the United States shows a similar scale of disparity.

I grant you that these are rough measures. International comparisons of this sort are always open to a degree of error but the fact remains that, even after two years of high wage growth, we very clearly have a low-wage economy on the international scale.

I do not believe for a moment that we cannot afford to do better. If Scandinavian economies, for instance, can afford high wages across the board and still thrive, why should it be impossible for the Hong Kong economy to do so?

Do we suffer from a social incapacity that does not afflict the Swedes? What sort of benighted inferiority complex is this?

In fact, I think the only way of truly being a world city, of boasting social conditions that the whole world can look upon with respect and envy, is to force the bottom end of the wage scale steadily up.

It won't ruin us. It will just gradually change the structure of the economy. We will no longer see people wasting their lives and their potential by sitting on stools and watching traffic go by all day for the price of a bowl of rice.

Jobs will have more challenge and more reward. The result will be a livelier and ever more civilised society.

There will also undoubtedly be an element of dislocation wherever this process takes place and we are now likely to see it happen faster than how it developed in Scandinavia.

But this does not mean, as employer lobbies like to tell us, that we will have massive unemployment. The only way it would happen is if they convince our government to open the doors wide to labour migrants and thus suppress wages.

But let natural job-market forces prevail, as they are doing right now, and we are on our way up.

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