A well-structured minimum wage can have a positive impact on Hong Kong and should be encouraged, says Nobel laureate Christopher Pissarides.
In an interview with the South China Morning Post, Pissarides also warns against rising debt levels in China, drawing parallels with the troubled euro zone and his native Cyprus.
"I am supportive of a minimum wage because of the encouragement that it gives to young people in particular, and older and not well-qualified people who feel they might be exploited," he says.
A specialist in labour market theories, Pissarides says the challenge is to find a level that protects workers without discouraging hiring. He recommends a starting level equivalent to 40 to 45 per cent of the average wage.
In the United States, the level is too low "and does not provide the security it needs to provide", while in France, at about 55 per cent of median income, it is "discouraging employers … and creating unemployment".
The Hong Kong minimum wage remains a contentious issue between employers and unions since it was introduced in 2011. Originally set at HK$28 an hour, it was raised to HK$30 in May. Unions wanted HK$35.
According to the Census and Statistics Department, the average monthly salary in June was HK$13,982. Assuming a 48-hour work week plus meal times, a worker earning the minimum wage would take home HK$6,240 a month - within the framework suggested by Pissarides.
The hourly rate should then be "pushed up until you reach the point where you are putting at risk job creation and then leave it there", he says.
Pissarides is in Hong Kong in his capacity as visiting professor at Hong Kong University of Science and Technology. He won the Nobel prize in economic sciences in 2010.
An adviser to the Cypriot president on how to restore confidence in the country's economic and banking systems, Pissarides forecasts negligible growth across the European Union next year and views with concern China's local government indebtedness.
Making comparisons between the euro-zone crisis, including the use of creative accounting that masked national debt levels in southern European nations before 2008, and Chinese local governments' borrowing habits, he worries that Beijing will need to confront a similar crisis in the future. "There are mounting debts and non-performing loans at local banks," he says, and "as in the euro zone, these could lead to expulsion from the markets and put at risk local deposit."
The unpalatable solution in both places, he suggests, is debt forgiveness and for large fiscal transfers to those regions in need.
China will also need to confront the challenges of an ageing society and dwindling workforce, he says. "Human resources will always be the driving force of economic growth. It will just change. It will become a more highly educated labour force. It will not rely on low wages any more … Growth will come from new technologies and new innovations, new discoveries, new ways of doing things," he says.
The relaxation of the one-child policy is a positive first step, Pissarides says, in reference to recently announced changes to allow parents who are themselves the only child to have two children. But liberalisation should go further, he says.