The minimum wage has re-emerged as a controversial issue. In view of Beijing's obvious concern for social stability in Hong Kong and the widening wealth gap, it is a topic the Donald Tsang Yam-kuen administration cannot ignore. But the ensuing debate has only polarised the public further.
From a market-economy perspective, minimum wage legislation often falls short of protecting low-income earners. Employers may hire fewer staff to reduce costs, for example, or find other ways to skirt minimum wage legislation.
So it is a gross exaggeration to argue, for example, that restaurants would have to close because of a minimum wage above HK$20 per hour. On the other hand, many restaurants and shops have indeed been forced to close because of high rents.
As Hong Kong becomes a mature economy and its economic growth rate slows, many businesses have made use of labour-saving technology. After the high-growth 1970s and 1980s, cutting labour costs has become an important way of improving profits. The minimum-wage factor, therefore, has become less significant.
When the Mandatory Provident Fund (MPF) schemes were introduced at the start of this century, some businesses asked their employees to change their status to self-employed and to work on labour services contracts. In that way, businesses evaded their obligation to contribute to the MPF. Minimum wage legislation may encourage similar tactics.
Although minimum-wage legislation may not fully defend the interests of low-income earners, it will not damage their economic interests, either. If basic-wage improvement becomes a city-wide trend, the burden will shift to the entire population.
Rising wages in turn will improve the incomes of poorer families, who are also more likely to consume. Overall consumption should expand, contributing to Hong Kong's prosperity. This is the national economic development strategy pursued by the Chinese leadership in recent years.