I had advocated the introduction of a minimum wage in Hong Kong for a long time, and was happy to see that a statutory minimum wage was finally introduced in 2011. I had also advocated a wage subsidy for a long time, and was overjoyed to see the idea taken up by the Hong Kong Special Administrative Region government.
The reason why I supported introducing a minimum wage is that the free market could lead to wage levels that grossly deviate from productivity. A worker’s output may be worth HK$100 ($12.74) an hour. But the employer may be able to hire a worker who is willing to accept pay as low as HK$30 an hour, simply because labor supply is abundant and work is scarce. This is often the case for unskilled jobs, and globalization does not help.
However, there is no question that if the minimum wage were to be set high enough, jobs would be lost, and the welfare of vulnerable groups may be hurt. This happens when many employers cannot afford the wage. If so, the cost to society may be higher than the benefit. That’s why the Minimum Wage Commission is required, under the Minimum Wage Ordinance, “to maintain an appropriate balance between the objectives of forestalling excessively low wages and minimizing the loss of low-paid jobs” and “to sustain Hong Kong’s economic growth and competitiveness”.
In principle, the statutory minimum wage should be raised by an additional dollar if this increment brings about more social good than harm. We should keep raising an additional dollar till the additional social good is more than offset by the harm. Since there is no guarantee that at this level the wages earned will be adequate to meet the basic needs of a household, we simply cannot rely on the minimum wage alone to bring about a “living wage”. This is why I advocated a wage subsidy. In November 2015, the Low-income Working Family Allowance Scheme was announced and applications were opened in May 2016. Successful applicants could receive the allowances that were paid retroactively starting from November 2015. In 2018 the scheme was renamed the Working Family Allowance (WFA).
Director General of Oxfam Hong Kong Ms Kalina Tsang wrote in a commentary in Mingpao that a full-time unskilled worker earning the minimum wage of HK$40 per hour, 49.7 hours a week, for a total of 26 working days in a month would only collect HK$9,651, which is lower than the Comprehensive Social Security Allowance for a family of two by over HK$1,300. She did not include the $1,400 monthly allowance under the WFA. With the WFA included, the total income for a working family of two with one breadwinner beats the CSSA. If the couple has children, each eligible child is also entitled to child allowance.
I would fully support raising the statutory minimum wage if this would bring about an increase in net social benefit. But direct comparison with the minimum wage elsewhere may not be appropriate. In many countries, consumers have to pay retail sales taxes, but in Hong Kong we do not have the tax. In Hong Kong, roughly 50 percent of households live in subsidized public rental housing (PRH) or Home Ownership Scheme housing. In the United States direct government subsidies cover less than 4 percent of the US’ housing stock. In the US, under most federally-funded rental assistance programs, tenants typically pay monthly rent at 30 percent of their household income. In Hong Kong, rents among PRH households are now typically lower than 10 percent of the median household income.
It has been pointed out that the minimum wage has lagged behind inflation. This is true. Public housing rents have also lagged behind private sector rents by a wide margin, and from time to time PRH tenants had been given rental waivers, so being a public housing tenant entails huge benefits. Life has been hard, particularly over the past three years, and many businesses were hard hit. Many restaurants, even those with a long history in Hong Kong, went under. Many business owners had been struggling with negative net incomes for months and sometimes for years. So far, the minimum wage does not appear to have jeopardized jobs, and indeed the percentage of those who earn minimum wage has fallen to less than 4 percent. There may well be a case to raise it again, but the case for raising the Working Family Allowance may be even stronger. The WFA is financed from general revenue, and in Hong Kong only those with the ability to pay will be taxed. But small businesses have to pay wages, rent and other incidental costs regardless of whether they have incomes.
The government is the custodian of public interest. It has to have the interests of all stakeholders in mind. The challenges facing Hong Kong are daunting, but with care and an analytical mind, the government, it is hoped, will find the optimal minimum wage and the optimal Working Family Allowance.
The author is the director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.