Poverty could be alleviated by raising the minimum wage

Chief executive-designate John Lee Ka-chiu has pledged to deal with poverty as a priority. We encourage the government to increase the statutory minimum wage (SMW) substantially to provide an acceptable standard of living for low-income workers based on the current wage level and cost of living in Hong Kong.

Nearly every two years since it was first set at HK$28 ($3.57) per hour in 2011, Hong Kong’s SMW has been increased based on the recommendation of a commission that looks at the overall economic situation, labor market conditions, competitiveness and social factors such as the standard of living. The most recent revision was in 2019, when the SMW was set at HK$37.5. In 2020, the commission decided to freeze the SMW until 2023 because of the difficult economic environment following the 2019 social unrest and the COVID-19 pandemic. However, the living cost will not be adjusted every two years as the SMW. While the SMW was established mainly to make sure the lowest-paid workers are not taken advantage of while also ensuring that Hong Kong stays competitive, the present level and mechanism of the SMW do not ensure workers will earn enough to cover necessities.

In considering whether the SMW currently covers basics such as food, shelter, transportation, education and healthcare, it is obvious that it falls far short. A three-person family with one child, where one parent works 208 hours per month (eight hours a day, 26 days a month) and the other works part-time for 154 hours will earn HK$13,575 per month based on the current SMW. This is significantly lower than what is needed to live in Hong Kong. According to a 2018 study by Oxfam based on 2017 prices, a family of three would need to earn HK$20,500 per month. Based on Oxfam’s estimate for the cost of living, and the assumptions of a 208-hour work-month (154 hours for part-time), an SMW of HK$52 to HK$57 would be required. And note, that is based on a cost-of-living estimate in 2017 prices. Adjusted for inflation, the 2022 cost may be some 7.3 percent higher, meaning the SMW would need to be around HK$56 to HK$61 to meet basic needs of living.

A main component of the cost of living is the housing cost, and the SAR government does support lower-income families through subsidized housing. Oxfam’s figures assume that a three-person household needs to pay approximately HK$9,500 per month to rent a home. While rent in public housing is lower, the average rent of public-rental-housing was still HK$2,276 per month and ranged as high as HK$5,657 as of June 2021; and the waiting time to get public rental housing is at a historical high of 6.1 years and is expected to become longer in the near future. Those queuing for public housing are forced to rent from the private market with miserable conditions and it is still unaffordable to many. Those families have very little left over for food, education, transportation and other expenses; and their children would certainly be deprived of many opportunities to have a healthy growth and development.

The government’s “Hong Kong Poverty Situation Report 2020” showed that 23.6 percent of the population remain below the poverty line, the highest level in 12 years. The report defines the poverty line for a three-person household as HK$16,000. Clearly, the current SMW is not sufficient to lift a three-person family out of poverty. The government has to use additional resources to help these vulnerable households through the low-wage families support program. Instead of subsidizing the low-income wage earners, why can’t we raise the SMW?

A key consideration when deciding whether to increase the minimum wage is the effect on unemployment. The argument is that when the floor price of labor is set above the equilibrium price level of labor, employers will demand fewer workers, thereby increasing unemployment. While this may be true in some segments of the labor market, from 2010 to 2019 (before COVID-19), Hong Kong’s overall unemployment rate fell. In fact, according to the Minimum Wage Commission, introduction of the SMW encouraged people to enter the labor market and led to a 60 percent decline in the number of Comprehensive Social Security Assistance unemployment cases from 2011 to 2019.

It’s noteworthy that the percentage of workers earning the SMW declined from 6.4 percent in 2011 to 0.7 percent in 2019, equivalent to about 21,200 workers. So while the unemployment rate increased from 2.9 percent in 2019 to 5.2 percent in 2021, it is unlikely that a change in the SMW will affect the overall unemployment level with such a small number of employees earning the SMW.

While there has been a lot of focus on the effects of a minimum wage on unemployment and competitiveness, there has been less focus on whether the minimum wage enables the working poor to support themselves. Consider that the government is the largest employer in Hong Kong, and many unskilled workers earn the bare SMW providing service for the government through outsourcing arrangements. By hiring these low-skilled workers directly, the government would provide much-needed financial resources to more than 20,000 households with young children. It would send a rippling effect in improving wages to low-skilled workers in private sectors. It would help to reduce the government social welfare subsidy; and the self-esteem and well-being of these low-skilled workers could be improved without imposing too much of a financial burden on the government. If the new administration is looking for results, raising the SMW is a win-win situation. For the time being at least, increasing the SMW and making adjustments on an annual basis would do more good than harm to the community.

Karl Robertsson is a rising senior at Hong Kong International School.

Paul Yip is a chair professor at the Department of Social Work and Social Administration of the University of Hong Kong.

The views do not necessarily reflect those of China Daily.