Maximum benefits, not a minimum wage

The recent popular demand for a minimum wage law shows that, even after our economic recovery, many people are still earning wages below the subsistence level.

But our economy is dependent on the world beyond our borders. So it would be detrimental to bridge our poverty gap by imposing wages higher than those determined by market forces in a globalised world. That would make Hong Kong less competitive, and the first to suffer would be our least-skilled workers.

Small, externally dependent economies are volatile. During business downturns, a minimum wage would reduce our economy's ability to adjust. Jobs for the least skilled would disappear first. And a minimum wage would never benefit the self-employed.

Now, consider our Comprehensive Social Security Assistance scheme. It has none of the above defects, and it already guarantees workers a standard of living equal to or above what a minimum wage would likely provide.

Take an unemployed, able-bodied couple with two children, aged one and three. They are entitled to monthly CSSA payments of HK$9,974 for basic expenses, plus HK$7,365 for childcare-centre fees, plus all school-related outlays. When the couple earn income, their CSSA entitlement is reduced, but it doesn't fall to zero until their earned income reaches about HK$20,000.

The concept of CSSA is sound. Market forces can create gaps, for some, between their income and a subsistence level of living, It is universally accepted in market economics that those gaps - defined as needs - should be met from the public purse.

CSSA is relatively efficient. Unlike our housing-assistance programme, it does not grant the same, standard benefit to everyone below a certain income level. Rather, it tries to meet the actual need, or shortfall, in each case.

CSSA provides an incentive to work. When an unemployed CSSA recipient gets a job and earns income, he will be entitled to benefits equivalent to 50 per cent of his earnings, on top of his wage. This applies when the person earns over HK$600, up to a ceiling of HK$4,400. Any earnings above that level do not qualify for extra benefits.

In effect, CSSA integrates unemployment benefits, an income supplement and aid for the elderly. What can we do for those who are too proud and self-reliant to claim CSSA benefits, while preserving our economic flexibility? The answer is not a minimum wage, but wage packets including both pay from the employer and government income supplements.

Given the substantial entitlements that are available, people might be tempted not to work at all - or to seek only jobs paying less than HK$4,400. One solution to this would be to have a more stringent entitlement for the able-bodied unemployed, coupled with the removal of the HK$4,400 threshold. Instead, the set-off rate could become, say, two-thirds throughout. This means that for every HK$100 earned, benefits would fall by HK$67 - so that the living standard rises by HK$33 - up to a preset limit.

A panel of experts and community representatives should be assigned to determine, periodically, a basket of goods and services that constitutes an equitable 'safety net' level of living for the able-bodied unemployed.

Reforms can have far-reaching consequences. In the example cited here, the family's HK$9,974 entitlement includes a HK$3,545 rental allowance. This should become a housing allowance that could be used to purchase a home.

If that were coupled with putting public housing units up for sale, it would effectively give low-income families the option of buying their home. This would create a better quality of life for many elderly homeowners, as Hongkongers age.

James Lee writes as an independent observer. This article is abridged from papers in www.hongkongbetter.com