Poor still feeling squeezed despite the introduction of minimum wage

An increase in minimum hourly pay has done little to improve the plight of many, the focus of a two-part series tied to today's poverty summit

PUBLISHED : Saturday, 28 September, 2013, 12:00am
UPDATED : Saturday, 28 September, 2013, 4:29am

When Hong Kong's minimum wage law kicked in 2-1/2 years ago after a long debate, it was hailed as the biggest step forward in years for the city's lowest-paid workers.

But like tens of thousands of other low-income earners, 62-year-old security guard Ngai Kwan remains indifferent, even after the minimum wage rose from HK$28 to HK$30 an hour in May.

"Yes, we're earning a bit more per hour than we were before but let's face it, even at HK$30 an hour, it's still hard to make ends meet in this city. Living costs are getting higher, but salaries aren't able to catch up," Ngai says.

For Ngai and other low-income workers who live alone and near work, sparing them the cost of transport, the minimum wage increase at least provides some benefit. For some others, their wage increase might not have offset additional transport costs.

Average monthly earnings for the lowest 10 per cent of full-time employees in Hong Kong from April to June were about 8 per cent higher than in the same period last year.

However, for working-poor households, the minimum wage has not been enough to help them escape poverty. The number of such households grew by 6,000 to 191,000 in the 12 months following the introduction of the minimum wage, according to the Council of Social Service, Hong Kong's umbrella organisation for welfare bodies.

"At the moment, the government's concept of a minimum wage is to help low-income workers, not low-income working households," says Lee Cheuk-yan, a Labour Party lawmaker. "It is not being used as a tool to help relieve poverty at all."

Officials and social welfare advocates say this could begin to change after today when, for the first time, an official poverty line for the city is set - at half of the median household income - during Hong Kong's inaugural poverty summit. The meeting brings together scholars, NGOs and the government's Commission on Poverty, which was revived last year after being abolished in 2007.

Minimum Wage Commission chairman Jat Sew-tong stressed last week that while the higher minimum wage may help alleviate poverty, there was no need to peg the minimum wage to the poverty line, as its primary objective should be to tackle low wages, not the wider issue of poverty.

Either way, setting a poverty line will be a major step forward, officials say. It will allow the government to gauge how many people have incomes under the line and establish a target of how many it can effectively try to lift out of poverty and set a date for doing so.

The main question is how.

Dr Law Chi-kwong, professor of social work and social administration at the University of Hong Kong, has been lobbying for the introduction of a government subsidy for low-income families. But he says it would be better to supplement the subsidy with a more reasonable statutory minimum wage.

"We should use an income-distributing method such as minimum wage to lift people out of poverty and use it to supplement a separate subsidy for low-income families," he says.

Law, a member of the Commission on Poverty and head of its Community Care Fund task force, says raising the minimum wage could help solve the poverty problem given that the city enjoys what economists consider to be virtually full employment. The city's unemployment rate is 3.3 per cent.

Law cited as an example the spring of 2011, when the city's minimum wage was introduced. Normally at that time of year, many high-school graduates would join the labour force. But, because of a restructuring of the education system that added an extra year of compulsory schooling, they remained in school and not in the full-time workforce.

"In theory, the labour supply would have contracted, but it didn't. Why? When the price of labour is higher, more people who are not working are encouraged to go out to look for work," Law says. "The labour supply actually expanded in 2011 and this may suggest a close correlation between the minimum wage and higher employment."

Law says that, for the minimum wage to have an actual impact on poverty, it would have to be set at a much higher level and increase yearly by at least the rate of inflation.

Hong Kong's minimum wage is reviewed every two years by the Minimum Wage Commission.

Some argue that increasing the minimum wage would lead to a rise in prices for goods and services and cause some employers to cut staff or operate fewer hours to cope with higher wages.

"Hong Kong's actual wage floor should, in theory, be set somewhere nearer to HK$60 an hour by international standards. This is of course politically and economically infeasible to implement in one go," Law says. "It will have to be increased gradually."

Law believes that should the minimum wage increase to that level, Hong Kong residents would slowly get used to paying more for their purchases and services. He says it is the only way the cycle of poverty can be broken. Chronically suppressed wages, he argues, are a direct product of the city's addiction to cheapness and convenience.

"In which developed economy can you get a Big Mac cheaper than in Hong Kong?" Law asks. "All the great things we enjoy for granted today have also implicitly generated social costs that we did not realise. We created this poverty."

The statistics are there to prove it. According to the Census and Statistics Department the 10 per cent of the city's workforce earning the least made just HK$29.30 an hour on average between May and June 2011. Average wages in the fast food industry before the minimum wage was implemented were HK$12 to HK$14 an hour.

But raising the minimum wage to a more reasonable level could prove as difficult as implementing it in the first place.

A blueprint for a voluntary minimum wage was not rolled out until 2006 despite having been discussed for years.

Many Hongkongers' faith in freewheeling market economics means anything suggestive of welfare-statism or higher taxes is frowned upon.

"Ultimately, the way to reduce the number of working poor would be to increase our minimum wage," says Wong Hung of Chinese University's department of social work. The definition of poverty, Wong says, is that a person's basic needs go unfulfilled. "The minimum wage should be based on scientific research on necessary monthly spending on Hongkongers' basic needs of the day," he says.

The last time the government conducted a basic-needs study, however, was in 1996, which was also the same study the Comprehensive Social Security Assistance - Hong Kong's catch-all welfare net - was based on.

Some of Hongkongers' needs, like those of people elsewhere, have changed in the last 17 years. The home telephone, for instance, is no longer a basic need.

Wong says it is important the government conduct another such study, to which he says the minimum wage should be linked.

Labour's Lee believes any minimum wage should take into account transport costs and factor in families already receiving Comprehensive Social Security Assistance (CSSA). Any income beyond a HK$4,200 per month threshold results in incrementally smaller CSSA payments. "We think HK$35 per hour is the standard rate at which it will allow two dependents on CSSA to have a decent 'living wage' for eight hours' work a day. This way low-income households would not have to work overly long working hours just to make ends meet," Lee said.

Poverty, Law believes, can only be alleviated if Hongkongers as a whole are willing to change their living standards.

"The free market system is economically efficient, as it guarantees the most efficient use of resources. But at the end of the day, we're not looking at how to use resources better - we're looking at ways of how to improve livelihoods," he says.

"When some people cannot get adequate protection from this so-called efficient system then some intervention is needed in the form of income distribution or income redistribution.

"Since raising taxes for redistribution is out of the question, the only way would be to increase the distribution of income by using minimum wage."

Tomorrow: why a poverty line is only the first step