Jake's View

Employers, and not just the minimum wage, distort Hong Kong labour market

PUBLISHED : Sunday, 10 August, 2014, 4:50am
UPDATED : Sunday, 10 August, 2014, 4:50am

"[The minimum wage] is an ineffective solution for addressing poverty, and its main outcome is to distort the labour market decisions of employers and employees.

Professor Richard Wong Yue-chim
South China Morning Post, July 30

I'm a coward. I like easy targets. But let me pretend to a least a streak of courage by disputing economic matters with one of Hong Kong's most eminent economists.

While driving along South Bay Road the other day I had to swerve around an old man, I would guess at least 75 years old, with a pronounced limp, who was pushing an overloaded rubbish trolley up the incline to a collection point.

What a shameful thing it is when one of the world's wealthiest cities has so little regard for its indigent elderly that it must still condemn them to depend on heavy menial labour for their livelihood in their declining years.

A minimum wage was first proposed years ago because senior government officials recognised it as a disgrace to Hong Kong that so many elderly people were employed as toilet cleaners and rubbish collectors at only hundreds of dollars a month.

Either fix it yourself or we'll fix it for you, said Donald, then chief secretary, to their employers. They didn't fix it.

We now think of the minimum wage as a broad social measure, and Richard Wong may be right in saying it does not work as such. But if it succeeded in easing the plight of elderly toilet cleaners, and it did, then that was a scandal redressed and a successful measure on this count alone.

I am not sure, however, that Richard is entirely right in saying that it is an ineffective solution. I accept that he is right when we consider the world overall. Income polarity and unemployment result when the world's labour market is not allowed to find its natural price level.

But we are not talking here of the whole world. We are talking of Hong Kong only, and Hong Kong employers have their own way of distorting the local labour market as much as any minimum wage law can do.

Their way is to lobby the Hong Kong government aggressively to allow in migrant labour whenever a booming economy pushes down unemployment and puts pressure on them to raise wages.

I have nothing against the working people of the Philippines or Pakistan but the inequities of their societies are their own to resolve and not our responsibility.

Hong Kong's responsibility is to its own working people, and when a booming economy finally promises to give them the rewards of their labour through higher incomes, it is grossly unfair to rob them of it by suppressing their wages through artificial supply of the labour market.

It is not only unfair but it freezes Hong Kong's economy at a more primitive stage of development, with wide income disparity and too heavy a reliance on menial trades.

This is not just a theoretical scenario. As the chart shows, since the economic bottom in 2003 real gross domestic product per employed person has far outstripped real wages. The rewards of hard work have gone almost entirely to capital rather than to labour.

So let's have it one of two ways, Richard. Either we restrict migrant labour tightly and then we can abolish minimum wages to let the labour market find its own level or we open the gates to migrant labour and then distort the labour market on the other side as well with minimum wages. It's not a happy solution, but a worse one is to call for a free market on one side of this equation and then actively distort it on the other.