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CommentInsight & Opinion

Wrong time to raise minimum wage

C.K. Chow says with employers of SMEs still struggling to cope with paying a minimum wage, there is no sense in adding to their burden - by raising it - in a still-weak global economy

PUBLISHED : Tuesday, 25 September, 2012, 12:00am
UPDATED : Tuesday, 25 September, 2012, 2:57am

In the past several years, we in Hong Kong were fortunate to be spared the worst effects of the global financial crisis. Our legendary flexibility and adaptability allowed us to continue, even in the face of the worst collapse in global trade since the 1950s, to offer services to our business partners. It also helped us to continue to employ our staff, and to pay them what they deserve.

The coming year will be another difficult one, with uncertainty in Europe and elsewhere undermining confidence, curtailing demand and wreaking havoc with order books, budgetary planning and pricing. We've been through it before and survived, and we will do so again.

Therefore, it is imperative we recognise that times of great risk and uncertainty are not conducive to the introduction of new regulations or other measures that have the effect of driving up the cost of business while undermining our international competitiveness. We need to adopt the right policies, but we also need to get the timing right.

The statutory minimum wage came into effect in May last year. Since then, consumer prices have increased 2 per cent and gross domestic product by 1.2 per cent. Proposals to increase the wage rate from HK$28 an hour to HK$33, or even HK$35, would equate to pay hikes of 17.9 per cent and 25 per cent respectively. This is obviously a non-starter.

While populists may rant against big businesses, it is the hundreds of thousands of small and medium-sized enterprises which provide the jobs that keep Hong Kong strong. Large corporations can afford to absorb higher costs for rent, raw materials or labour much better than SMEs. It is the more vulnerable companies that need the support and protection.

The introduction of the wage floor has sent a financial shock through the payrolls of companies of all sizes, but the hardest hit are our SMEs. Over 90 per cent of our retail establishments employ fewer than 10 people, and in the past 18 months they have had a hard time hiring staff. We see this in the government's statistical data and from comments we receive directly from our members and the community.

In the restaurant and related industries, wages have been rising at double the rate of inflation for more than two years. Yet retail sales growth is slower than inflation, reducing profitability and threatening some of the weaker companies with closure.

Price fixing, whether for commodities or labour, distorts markets. In addition to the stated objective of forestalling excessively low wages, the pay rates for workers earning over HK$28 per hour also have to be increased, to maintain the premium expected for more experienced or more productive staff. This knock-on effect is above and beyond the actual impact on companies predicted by the economic analysis conducted prior to passage of the law.

Further, the wage floor has encouraged workers to move from labour-intensive jobs to those requiring less effort. While this may seem to be a good thing for workers, it leaves vacant positions that need to be filled. As a result, we are experiencing shortages in the availability of workers in the construction sector and other outdoor work, and those located in inconvenient places (such as the airport) in particular. In the end, even though such employers are offering pay well above HK$28 an hour, they still have trouble filling all the jobs available.

We also worry about people dropping out of the labour force, or taking part-time jobs to stay under the threshold for qualifying for public-sector housing. A young couple, both earning HK$28 an hour for full-time work, may not qualify for public-housing assistance. One option for them to take, which may be why growth in our labour force is slowing, is for one person to work less than full time. This can hardly be considered a useful policy outcome.

The Minimum Wage Commission will soon report to the chief executive on the law's impact and whether there should be any adjustment - up or down - in the wage floor. Politically, there is no possibility that the Legislative Council would approve a reduction, and so we must accept that whenever adjustments are made, they will be permanent. We have been fortunate that the introduction of a wage floor last year was less disruptive than expected due to more favourable economic conditions at the time. We cannot assume that we can continue to push the envelope without consequences, especially when markets around the world continue to flounder.

Hong Kong's near-term economic prospects are decidedly gloomy. While we have great advantages in our institutional structures, administrative competence and talented entrepreneurs, we do not have the ability to stimulate demand in other parts of the world.

What we can do is ensure companies that have been successfully operating here, perhaps for generations, are not driven to the wall by a hasty or unwise decision to permanently raise the cost of doing business. Doing so would be a disservice to both employers and, ultimately, employees and society at large.

C.K. Chow is chairman of the Hong Kong General Chamber of Commerce

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This article is now closed to comments

boondeiyan
1. Don't hide behind misleading statistics. The unemployment rate has fallen from 3.6% at the time of minimum wage implementation in 2011 to 3.2% in the three months to August 2012. Total employment has, of course, increased (3.6 mn to 3.7 mn). As any introductory economics text will remind you, a wage floor set above the equilibrium will increase -- not decrease -- unemployment. Please look elsewhere for your smoking gun.
2. Kindly be respectful. These are your fellow residents and citizens. Your complaint about workers preferring less strenuous work for the same wage is merely bizarre. But your caricature of workforce dropouts protecting their toehold in public housing estates due to the vagaries of a minimum wage is downright insulting. You cannot expect readers with more than a Form 3 (non-national) education to take this seriously. Instead please consider making a useful contribution to the well-being of Hong Kongers by addressing the fact that a roughly 750 sq.ft. flat in, say, Telford Gardens costs more than 17 times the prevailing annual median wage and is unlikely to become more affordable through lowering or scrapping of the minimum wage.
chefcrsh
It is not big business that is exploiting workers. It is you, the consumer who demands $20 value meals, and yet still expects a return on your MPF, property investment etc. Start paying a reasonable price for these goods and you will be able to demand those people should make more wage.
Nearly every economist is in agreement that minimum wages only hurt the unskilled worker, the poorest and the untrained. They further injure everyones right to self determination because one is no longer allowed to accept a fee they personally may feel is better than the alternative of unemployment. They must now only accept a minimum determined by a committee who can not have enough local knowledge to adequately make such decisions.
As the article said price fixing and all such barriers to entry can only distort markets, and like the distortions that brought about the 2008 crises, it is the poor and unskilled who suffer.
Much like democracy to government, free exchange is the worst method of price setting, except for all the others that have been tried.
captam
Don’t listen to the Chamber of Commerce on minimum wage pronouncements. If you listen to these people there is never a “right time” to raise minimum wages for the poorest members of the community.
The catering sector Legislative councillor was viciously opposed to the introduction of a minimum wage and predicted an implosion of businesses and mass closure of restaurants if this was over $20 an hour. It has been proven that he was wrong. Restaurants did not close in large numbers because of higher wages.
The biggest threat to SME’s, which employ small numbers of staff is not a higher minimum wage. The biggest threat of all is HIGH RENTALS which drive hundreds of these businesses to the wall each month. Why are you silent on this issue Mr. Chow?
It’s time for rent protection legislation. It should never have been removed in respect of small residential flats and it needs extending to commercial properties as well.
tiny4000
I agree. With some people it is never going to be the right time to raise wages. At $28/hour I admit to having spent a "days wage" in an hour or so on a meal! Luckily I earn more than the basic wage. I also agree not to get stupid with a massive increase but regular,6 monthly, upward adjustments must be made until a useful and proper level of around $40/hr is reached.
trista827
Its true. Rent should be the largest proportion of expense for many companies, espeically catering sector. Expensive rent is the fatal reason of closure and what should be blamed. If the rent is ever escalating again, it is the true culprit of closure of SMEs.
rpasea
This is an absurd defense of allowing big business to continue exploiting workers. The minimum wage is too low and needs to be adjusted regularly so people can earn a living wage. Using IRD's threshold for paying salaries tax at $120,000 per year as the target for a minimum wage would result in a rate of $48 per hour assuming a 2500 hour working year. This is a reasonable rate for a wealthy city like Hong Kong.
Henry Ford once opined that he wanted to pay his workers enough to be able to afford to buy one of the cars they made. His logic was that people earning a living wage would buy goods and services supporting other workers and other companies and the economy would grow to everyone's benefit. Would a bowl of noodles cost more? Probably but we can afford it and the folks making and serving your noodles would be able to as well.

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