Across the world, the issue of minimum wages arouses great passions – and lots of specious statistical claims. Last week, Walmart in the US decided to put all those arguments to the test in what is likely to be an epic experiment that will inform us all.
Long vilified for its low wages, the US’s largest private sector employer is about to hike the hourly wages of its 500,000 lowest-paid staff from the Federal minimum of US$7.25 to US$9.00 – with a further hike to US$10 next spring. The move will add over US$1 billion to its wage bill. This sounds painful, but set against annual revenues of US$486 billion, the pain won’t be as acute as it seems.
Already, there are some in US business that are predicting that Armageddon is about to be unleashed, in particular for fast-food groups like McDonalds and Pizza Hut.
This vividly reminds me of the epic panic in Hong Kong’s business community when the government unveiled plans to introduce a minimum wage. In 2010, in the midst of the debate, our business chambers rang loud alarm bells: the British Chamber opposed a minimum wage outright; a cleverly statistical – but ultimately specious – paper from the Hong Kong General Chamber warned of a danger that a minimum hourly wage of HK$28 (the minimum eventually set in May 2011) could lift unemployment from the then 5.2 per cent to between 7 per cent and 10.5 per cent. The HKGCC paper warned that a rate of HK$33 “would be unsustainable for many businesses, especially for the labour-intensive and low-paying sectors”.
In a couple of months, the minimum wage is likely to be lifted to HK$32.50, and on best evidence around me today, Armageddon has yet to descend. And unemployment has not risen as forecast. On the contrary, in the four years since a minimum wage was set, unemployment has fallen steadily. At last check it was 3.3 per cent.
Throughout this debate, I have lost friends in the business community by arguing that we have nothing to fear in a minimum wage – and on the contrary have much to gain.
First of all, the minimum wage affects most of us hardly at all. We earn so much more than the minimum, that the discussion can often seem remote. But for those that it does affect, the difference is critical. As has been noted in the US, even at US$10 an hour, a Walmart worker with a family of four would still need to rely on government assistance to be lifted above the US’s Federal poverty line.