JAKE'S VIEW
Jake's View
by

Leung Chun-ying successfully resists employers' migrant labour demands

PUBLISHED : Thursday, 16 January, 2014, 2:37am
UPDATED : Thursday, 16 January, 2014, 8:20am

It would be easy to dismiss the chief executive's latest policy address as just the usual staff New Year party - everyone gets a prize - except for one thing.

Hunt and peck through that speech as I might, I could find no reference to opening the borders wide to migrant workers in order to address employer complaints about critical labour shortages.

I thought I might find it under the heading of Development of the Construction Industry as our government bureaucrats have occasionally sung the chorus to the employer lament in this sector - we need to bring in more foreign workers if we are to meet our targets for infrastructure projects.

But, no, it wasn't there. This paragraph in the speech contained only exhortations to raising productivity and using more advanced technology. All it said about labour shortage is that more effort is needed to tackle the problem. It didn't propose a solution in migrant labour.

I then thought I would find it in the tourism paragraph but what I really took note of here was an admission that tourism "can create a large number of jobs for lower-skilled workers".

How interesting to see government admit it at last. In a wealthy city with low unemployment we have designated as a "pillar industry" a low-wage sector best suited to poverty-stricken start-up economies with high jobless rates.

What the chief executive said here, however, was that we should focus on high-spending visitors in order to "achieve the greatest economic benefits with limited resources". This certainly suggests very strongly that hotels will just have to grin and bear it if they cannot find enough waiters and chambermaids.

All of this I find welcome news, so welcome, in fact, that I think Mr Leung hardly needed to devote quite so much of his speech to poverty alleviation. His objectives in relieving poverty are much better met by that simple measure of keeping the doors shut to migrant labour and forcing employers to bid up for what they can find in the existing labour pool.

The chart demonstrates just how closely rising wages can be linked to tight labour supply. Few economic indicators show quite so close an inverse correlation in this town as unemployment and changes in the nominal wage index.

I actually think the HK$3 billion Low Income Working Family Allowance, which is expected to benefit more than 700,000 people, will be less effective in alleviating poverty.

Assistance of this kind can achieve its objectives with a smaller number of people but, when made a social programme of this scale, it encourages employers to pay their lowest-paid workers even less on the cynical expectation that government will make it up to them.

This is certainly how it has proved in public housing, a poverty-alleviation programme that, because of its scale, has effectively become an employer wage subsidy. Employers naturally pay as little as the market will bear and, if government covers housing costs, the labour market will bear a lower wage.

But it is only really true in an environment of ample availability of labour. With an unemployment rate of only 3.3 per cent, virtual full employment for an economy with social welfare, it is less certain.

Then scarce labour supply begins to play a key role in meeting the balance of demand and the fulcrum of the wage scale inevitably moves to higher wages.

It is the best way of reducing income inequality in any economy and Mr Leung seems to have found it at last. What is more, he faced persistent employer demands to open the doors to migrant labour and he fended them off.

I thus rate it a commendable policy address, not for what it did but for what it didn't.

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