Hong Kong Why statutory minimum wage is needed

In recent years, working poor (legislative council 2005) became a famous term in Hong Kong, when the economy of Hong Kong is continuously developing, the number of poverty people is also growing up, according to the report of The Hong Kong Council of Social Service (2010), there are 1.26 million people are living in poverty, those sound ask for more job subsidies to help poor people. At the same time, The Chief Executive-in-Council has adopted the recommendation of the Provisional Minimum Wage Commission (PMWC) to set the initial statutory minimum wage rate at $28 per hour; The Chief Executive-in-Council has also decided that the initial statutory minimum wage rate will come into force on May 1, 2011. The legislative council has been going to discuss the minimum wage, some politics likes Lee Cheuk-Yan (2010) was asking for early implement date of statutory minimum wage.

However, there are some politics and people still hold difference views to the statutory minimum wage, such as Cheung Yu-Yan (2010). The first argument of statutory minimum wage is the policy will affect the market freedom, one of the successful key in Hong Kong, now when Hong Kong government set up a statutory minimum wage, will harm the market freedom even deduce enterprise’s competitiveness. But in another view, if there is no statutory minimum wage, poor people cannot get a stable income to maintain their living.

In liberal society, government should give no interfere of the market, and under a free platform people can fight for their interest themselves. In this social context, the smart, hard working guys can earn more money, and some not high competitive people may be earn less money, but it is their own problem. It seems fair of difference people earn difference amount of money. However, in the post industrial society (Bell Daniel, 1974), Hong Kong became knowledge-base society from industrial society, in the new social context, some lower qualification and unskilled people cannot well survive in Hong Kong, although they can find job in Hong Kong, they have less bargaining power in knowledge-base society (Robert M Grant, 1996), the result is, they earn less money, even work in so-called working poor. If there are just a few amount of number is working poor, we may define it’s just an individual problem, but when there are almost 480000 people working with lower than $5000 monthly income, it’s not a individual problem, it is also a result of the changes of society.

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This paper is going to illustrate that why statutory minimum wage is needed in Hong Kong, and to what extent statutory minimum wage the policy will disable. Except the introduction, there are several different parts, including of the paradox of market freedom, adoption of liberal egalitarianism, knowledge-based society how to drive people poor, briefly history of legislation of statutory minimum wage in Hong Kong, side effect of statutory minimum wage, Hong Kong’s poor people need statutory minimum wage, to what extent statutory minimum wage will be disabled, how to make policy well and the conclusion.

Paradox of market freedom

M.Friedman (1980) named Hong Kong is the last resort if free market in the world, he thinks that the free market ideology was the key factor for the success of Hong Kong economy over years. Before 1997, Hong Kong government was practice the “positive non-intervention policy”. Under the “positive non-intervention policy”, the low tax rate and market freedom made Hong Kong became very successful trading port in the world. Hong Kong has been leading Economic Freedom for 15 straight years (1996-2010) according to the “Index of Economic Freedom” (Economist), no other country has ever surpassed it. When the enterprise competes in a free platform, and Hong Kong people develop their career in those situation, it seems very fair for fighting interest. However, free market will adjust well itself? We all know that, free market means people can work and earn money well, but earn more or less based on their ability, in the other words, it can also based on market value. If a person is high qualified and with strong senses, who deserve get more in free market, it’s fair. And if a person is low qualified even unskilled, who deserve get less in the concept of free market, it’s also fair. However, although some people earn more and some people earn less, is it means people should earn less money even the amount can just satisfy their very basic needs?

The most advantage of market freedom is people can earn whatever by their sense and putting effort, but the market value of some people is harsh too. If a person with no skill and low qualification, he is very hard working to earn money, he should not get much more money, but it doesn’t mean the amount he earn is extremely not enough by supporting his living.

Except market value, labor value is also counting on the supply and demand. The demand of low skill and low qualification people is not very strong, even it’s a bit of oversupply, the amount of those people is too high, and the result then is because there are many choices in employer’s hands, so they do not have to give a good salary to those people. But the same question occurs again, they are less demand, is it means they can just earn very less money? The problem is not earning very less money, is the amount of money cannot satisfy their needs, it is fair too?

In face of the employers, low skilled and low qualification people has no more bargaining power, maybe they should earn less, but when the salary is not enough for living, the question is not market value effective or not, but for it is perfect or not. People likes M.Friedman (1962) thinks that market freedom is benefit for society economy. However, even it is benefit for economy, benefits the smart, hard working and high qualification people, should government consider about the low skilled and low qualification people.

Effective is not equal to perfect, free market ideology is a effective way in Hong Kong’s economy, but when 1.26 million people are living poor, even the GDP in 2009 are over 1,632,284 millions (Census and Statistics Department), it’s just mean Hong Kong people are making a large product amount, not equal to most of Hong Kong people living with stable income. It’s not going to deny the market freedom ideology, it’s the time to consider that, Hong Kong government still has to practice those “positive non-intervention policy” or “small government, big market” ideology? If the answer is yes, there is a question government should thinking of, if the amounts of poor people keep rising, GDP is just a beautiful number to show how Hong Kong prosperous? Moreover, if amounts of poor people keep rising, it’s not a short term problems, it’s a long term social problems of Hong Kong, over million people living bad, they can’t get a reasonable income through working, would they choose to forgive the job and get the CSSA? If people keep live in a poor situation, will they do some criminal things to get money?

Adoptation of liberal egalitarianism

Previous argument not to criticize the effectiveness of the free market ideology, but doubting how is the system perfect or not. If free market failure to make every people living in a happiness way, then people should reconsider how to make it better, the meaning of better is not emphasis on maximize the profit and make the GDP of Hong Kong going up, it’s about how government use policy to make society more equal for people get reasonable income.

In those circumstances, shall liberal egalitarianism (Dworkin, R., 1975) be the ideology of solve the problems of market freedom ideology?

“each person is to have an equal right to basic liberties” and “eventual social and economic inequalities could be tolerated if they are both (i) for the greatest benefit of the least advantage and (ii) attached to offices and positions open to all”.( John Rawls, 1971)

Dworkin, R.(1975) criticize the proposition of liberties and equality by John Rawls(1971), and Rawls’s attempt to show that basic liberties are more important than economical and social differences is flawed. But in Dworkin’s (1975) theory seems that there is no real conflict between freedom and equality, and society should puts equality as a ground of liberalism.

According to Winsby, Meghan A(2006), “Luck egalitarianism is an approach to liberal egalitarian distributive justice, the goal of which is to provide a measure of how resources are to be divided in accordance with a guiding principle of equal concern and respect for citizens.”

In order to maintain the equality and respect the people, liberal egalitarian is an ideology liberalism to modify the liberalism, and under some sorts of distributive measure, people will be more concerned. In the other words, Liberal egalitarianism means people should distribute resources so that people can freely decide their life plans; it sounds good, but liberal egalitarianism is difficult to entirely implement in Hong Kong context, the reason is simple, free market ideology is the core ideology in Hong Kong, people should not deny the whole system to make poor people live better, but people can modify the system to improve poor people’s living, may be minimum wage is a form to do so.

Share the resources equally, government can rising the tax rate, and then distribute the resources to poor people, but the core problem comes again, except the free market ideology, low tax rate (Inland Revenue Department 2010) is also a successful key of Hong Kong, if rising up the tax rate, the competitiveness may be reduce in this context. Thus, it means rising up tax rate may not be the best method to distribute recourses. In the aims of distribute resources, there are two main standings, Neo-voluntary support practice the policy of universal basic income, it can also described it as statutory minimum wage in Hong Kong; Neo-liberal just think that government should give job subsidy. There is a very controversial issue between both argument, but exclude the controversial agreement, Hong Kong now is going to practice both policies for the cheap labor, Why say that? It is because on the side of universal basic income, Hong Kong will implement the statutory minimum wage in next year; on the other side, transport support scheme will be expanded to all Hong Kong labor if their monthly income is $6500 or below.

Implement of statutory minimum wage and expand transport support scheme, it’s the form of practice the ideology of liberal egalitarianism. The relationship between liberal egalitarianism and statutory minimum wage, it’s about use the regulatory policy, to distribute the resources from employers to employees. However, it is not going to ask the employers to distribute their profits to employees equally, and just distribute more money to employees, in the other words, reasonable income which can support labor living needs.

Knowledge-based society how to drive people poor

People always say that Hong Kong now is a knowledge-based society (Robert M Grant 1996), industrial economy is gone through already, in the context of knowledge-based society or post industrial society (Bell, Daniel 1974), why it makes people getting poor? In 70’s and 80’s, Hong Kong is a typical industrial economy society, the development of light industry like textile and clothing is dominant. The unemployment rate from 1982 to 1990 was just around 2% to 4% (graph 1). However, form 1990 to 1999, the unemployment was going up from about 2% to 6%, the manufacturing industry and the construction industry is two of the serious unemployment occupations.

When the economy changes, the vacancies likes manufacturing industry reduce hugely(graph 2), the result is people working in those industries will lose their job, and then in a knowledge base society, they have no survival skill and no qualification, what can they do? In the new context of economy, though they can find a new job, their bargaining power are very weak, because they have no knowledge in the new context of society, and the result is earn lower income. The problem is not they are earning lower income, is they just earn extremely low incomes; Even the income cannot support the living needs.

Brief history of legislation of statutory minimum wage in Hong Kong

The debates of set up statutory wage in Hong Kong has been discussing over years, from the document of legislative council, the first paper of propose statutory minimum wage in Hong Kong is in 1998, the panel noted the research paper on “proposal on Minimum wage in Hong Kong” by HKSSS (Hong Kong Social Security Society). Although statutory was being discussed in those years, government has no real action for the legislation of statutory minimum wage until 2009. Before the establish of Provisional Minimum Wage Commission (PMWC), government was doing something to encourage the employers give more salary to specific workers such as cleaning workers and security guards, it is a Wage protection Movement(2006). Unfortunately, the Wage Protection Movement cannot get the expected result, according to the survey of The Hong Kong Confederation of Trade Unions(2007), there were just 30 more organizations of 8000 more organizations joined the scheme.

In February 2009, Provisional Minimum Wage Commission (PMWC) is established, in November 2010, Executive Council accepted and adopted the Provisional Minimum Wage Commission’s suggestion, and announced that the statutory minimum wage will be set up on $28 per hour, believe that the statutory minimum wage will be implemented on May 2011.

Side effects of statutory minimum wage

When people talking about the side effects of statutory minimum wage, causes more unemployment seems a must. According to the Provisional Minimum Wage Commission (PMWC) report on October, 2010, if set up the hourly minimum wage to $24, then will makes 18900 people lose their job; If set up to $28, then there are over 40000 people will be unemployed; If set the wage level on $33, then unemployment people will increase 81000 (graph 3).

On the other side, except the lost of job, the survey of the Provisional Minimum Wage Commission (PMWC) report shown that, if the statutory minimum has been set up, whether the hourly income from $24 to $33, also may causes the deficits of enterprises (graph 4), if statutory minimum wage set up at $24, there are around 200 enterprises will turn profits to deficits; If the wage level on $28, then around 800 enterprises will get deficits; If set up on a much higher level such as $33, then will make over 1600 enterprises get deficits.

The side effects of unemployment seems a must result of set up a statutory of minimum wage, the argument is very clear that, a policy should protect the benefits of labor, but if it may causes the unemployment, government should also do so?

Except unemployment, deficits and competitiveness of enterprises, if the oversea domestic workers will make judiciary review of the government, disable guy need to assess their ability before get the minimum wage, then why government should also set up a policy to regular the statutory minimum wage?

Hong Kong’s poor people need statutory minimum wage

Before discuss Hong Kong’s poor people need statutory minimum wage or not, people should think about under the welfare system in Hong Kong, just practice statutory minimum wage is or is not enough. If government will expand the transport support scheme soon, it means some sort of job subsidy will help Hong Kong people, this policy should be user friendly. However, according to The Hong Kong Council of Social Service(2010) define “poverty family” as their income are lower or equal to the half of household income median, for example, one person who earns $3275 or less per month.

The studies of The Hong Kong Council of Social Service shown that, there are 1. 26 million people who is living in poor. And from the website of the Census and Statistics Department of Employed(2010), there are around 478,200 people who earns less than $5000 per month.

In this situation, government should do more except the job subsidy such as expanding transport support scheme, so may be set up statutory minimum wage is a form to do so. The argument is it’s the market price of the labor, why government intervene the system, but if people think this problem in another aspect, should the poor people deserve better.

People can blame the poor people, living in poor is the result of their own effort, but the context of post-industrial society or knowledge-base society, new immigration or others situation, there is no choice with some people, may be they are very hard working in their industries such as manufacturing industry, but after the economy changes, they cannot survive well anymore, it’s a individual problem or a structural problem, it’s very obvious.

When people talking about statutory minimum wage, people always discuss the pros of it, except those points about improve the life of labor and Maintain the social stability, there is a point people should also arguing for, it’s about the dignity of human being.

When people focus on the living needs, would they thinking of the dignity of human being, from the news of above picture (graph 5), we can see that the specific family how to survive in Hong Kong, they haven’t take the assistance of CSSA, and rely on the very limited income from the husband, If they can satisfy their living needs, then people should think that those income is enough already, but the woman of above case, who didn’t have enough money to buy food, so who can just go to the market and pick up some dropped food to let her and her family to eat. From this case, people have to think about why some people do not take the assistance of CSSA and strive to live themselves, but the result is living in poor even no money to buy food, no money to give children to buy cheap material for study.

If some people living in those situations, it’s not only the question about living needs, we also think that people live in this style, are they happy, and are they live with dignity?

When statutory minimum wage is being practicing, some enterprises would cut off the human power to reduce the production cost, and those people may be unemployed eventually. However, some sort of people may be unemployed in the statutory minimum wage, but if over hundred thousand people can benefits on the policy, it is still worthwhile.

Moreover, the research of Provisional Minimum Wage Commission shown there are over 40000 people will lose their jobs under the $28 of statutory minimum wage, is it reliable? The answer may be not. It is because from various studies oversea, such as the report of Ravn and Sorensen (1995), also pointed out that minimum wage may not causes unemployment.

People should reconsider the research of Provisional Minimum Wage Commission (PMWC), they ask the employers what will they do if statutory minimum wage runs, their first response is what? May be they will tell the fact such as further action likes cut off the employers, however, would they protect themselves? Though they have no intention to lay off the staff, and also tell the researcher they will lay off some people. It’s not going to criticize the truthfulness of the survey, but it may just reflect the thoughts of employers, in the real operation of enterprise, they want to lay off the staff, but they also need people to work for them.

Another aspect we have to pay attention on, it’s about the motivation of work. The impact of statutory minimum wage people does not know at the moment, but there is one more point people should going to consider, it does enhance the motivation of people going to work. CSSA is a main typical safety net in Hong Kong, there are many unemployed people live rely on CSSA. If statutory minimum wage implement in next year, the wages of people will being guaranteed, in this situation, work and get salary should much better than get CSSA, even people earn $6500 or less, government will subsidy their transportation cost through expanding transport support scheme. In the combination of statutory minimum wage and expanding transport support scheme, work is a good choice compare with get CSSA.

Sum up the argument of supporting statutory minimum wage, except those points about improve the life of labor and Maintain the social stability, people should also consider about the dignity of poor people, if a person hard working but still suffering, suffering not only no money to shopping or travel, but for working in harsh situation, and live in very bad environment, how would they thinking of. From the side of oppose statutory minimum wage, unemployed seems a main argument, but some studies shown that minimum wage may not cause those problems. Moreover, enhance the motivation of work is also a pros of practice statutory minimum wage.

To what extent statutory minimum wage will be disabled

Exclude the argument of the need of statutory minimum wage, government, people and political parties should pay attention for the effectiveness of statutory minimum wage, it’s not talking about the economy result, but for the possible leaks of minimum wage. According to the news feature of Apple daily (July, 2010), there are several method to tackle statutory minimum wage in enterprises views, including lay off the staff, reduce working hour, increase the product price, contract out the work, forcing rest hour, dining hour no payment, lay off the old staff and recruit them again to save the money of long term service.

People focus on the wage level of statutory minimum wage, and the unemployment will be caused by statutory minimum wage. Except those things, the method of avoid statutory minimum wage is also a key. Café de Coral Group was announced that from October 2010, the wage of staffs will increase $2 to $3.5 per hour, but dining time would not include in working hours. In the other words, though worker’s wage is going up, but dining time is not calculate in working hour, may be they will earn less money eventually. After the mass pressure, Café de Coral Group promised that they cancel the decision of cutting dining wage. From the case of Café de Coral Group, people may notice that if those enterprises cutting the dining time from working hour, statutory minimum wage can be totally disabled.

Except cutting the dining time from working hour, enterprises can also force staff to rest being the non-busy hour, and then calculate a less salary to them because of reduce the working hour. In the situation of cutting dining time’s salary and forcing rest time, statutory minimum wage will become a useless policy.

Even employers not ask their staffs to rest; they can also reduce their working hour, for example, if a staff working over 10 hours per working day, in the statutory minimum wage, the production cost may be rising up hugely. Thus, the employers can ask their staffs to work less time for saving production cost.

Furthermore, if enterprise put some sort of work contract out, and give the work to specific people or company, they will then ignore the liability of statutory minimum wage. If employers want to save money, they do not have to lay off their staff directly, cut off the dining time from working hour is okay already, just count a simple mathematics, if a person get $24 per hour, and work 8 hours per day including 1 hour dining time; In the implement of statutory minimum wage, who can earn $28 per hour now. In the old wages, who can earn $192(24X8) per day; And in new policy, who can just earn $196(28X7) per day.

Some method likes contract out the work; it’s not difficult to tackle in legal aspect. However, if government does not modify the policy well, dining time cut off, forcing labor to rest without salary and reduce their working hour are the keys of implement of statutory minimum wage.

How to make policy well

If government wants to make statutory minimum wage in a more effective way, there are 4 sorts of things who should do. Firstly, give a clear definition of dining time is or is not including in working hour; Secondly, set up the lowest working hour, to protect people have enough working hour and income; Thirdly, prohibit enterprise to contract out some sort of work to avoid the statutory minimum wage; Finally, shorten the evaluation period from 2 years to 1 year.

Firstly, government should give a clear picture to define dining time is or is not count on working hour, some people like Café de Coral Group human resources assistant director said that dining time excepts from working hour, can let staff get a real rest in those time. The agreement is, whether it is count on working hour or not, staffs can also take good rest in those times. Further, if dining is exception, the policy will be partly collapsed.

Secondly, set up a lowest working hour, to protect the working hour and income of labor. Dining time exception is a sort of avoid minimum wage, and deduce working hour is another key element of policy details. In general sense, enterprise need human resources to work, but in some occupations and some circumstances, employers can order the staffs to rest without payment, and then save the cost of salary. For example, catering operation is divided as busy hour and non-busy hour, breakfast time, lunch time, tea time and dinner time are the busy hour. However, between the tea time and dinner time, there is a non-busy hour. Some restaurants will let staff to rest, and in the new context of statutory minimum wage, those hours can be excluded from working hour. The result is, hourly income is rising up but working hour decrease, the monthly salary may not be going up eventually. Set up a lowest working hour, can protect the benefits of labor, even enterprises like restaurants decrease the working hour , but under the protection of new, at least they can work enough to get a bit more reasonable income, for example, set up the lowest working hour at 7 to 8 hours per day. May be it is difficult to implement of this policy, because in some cases, full time labor does not want to work 7 to 8 hour per day, because it is too long for them. But how to take a balance between those people and the majority, lowest working hour should be more benefit.

Thirdly, prohibit enterprise to contract out some sort of work to avoid the statutory minimum wage. Contract out the works, it’s common in Hong Kong, government also contract out the works likes cleaning job to private company. But in new context, would enterprises contract out the works to individual or specific company. If a company contract out some works outside, it doesn’t matter, but it must be a registered company, and the staff they employ must be satisfy the requirement of statutory minimum wage. Government should enhance the observation of the problem of contract out work, prohibit the enterprises avoid statutory minimum wage in the method of contract out the works.

Finally, the evaluation period is also has to adjust. If the inflation is coming up rapidly, but the statutory minimum wage is evaluated every 2 years, the living standard will be reduced. People should bear one thing in mind, if the evaluate period is too long, the raise of labor income cannot follow the inflation, their living standard would still on a lower level. Thus, government should shorten the evaluation period, from 2 years to 1 year.

Conclusion

In conclusion, minimum wage is an intervention in free market society like Hong Kong (M.Friedman, 1980), market freedom and the “small government and big market” is the successful key of Hong Kong. However, when Hong Kong developing its economy continuously, most of the Hong Kong people should living in a better standard, why there are 1.26 million people living in poor? It’s not going to criticize how is market freedom effective, but for how perfect it is. If it is a good system to draw greater income, it’s no problem; however, if behind the high GDP, it’s a consequence of more poor people, shall people find some solution to tackle the problems of poor. Market freedom is based on the liberalism, and can liberal egalitarianism be a better ideology in Hong Kong. And then, liberal egalitarianism emphasis the distribute resources so that people can freely decide their life plans, when government practice “the small government and big market”, government can do something for the poor people, one of the forms is job subsidy, another form is implement statutory minimum wage.

Hong Kong now is a knowledge-base society (Bell, Daniel 1974), the unskilled labor become lower market value in new social context, they can’t earn enough money to maintain their life, job subsidy is a form of solution, but when people thinking about job subsidy, it’s a long term burden of government, and $600 amount of expanding transport support scheme, is it really enough for low income labor?

Another argument is the side effect of statutory minimum wage, unemployment seems a must in the Hong Kong according the report of Provisional Minimum Wage Commission(2010), but under some studies of oversea, statutory minimum wage may not be causes unemployment, even it may enhance the motivation of work in the sight of people who getting CSSA’s assistance.

The legislation of statutory minimum wage, not only protect the living needs of low income labor, it’s also for protect their dignity. However, in the context of Hong Kong, there are some methods to avoid statutory minimum wage, such as dining time exclude from working hour, decrease the working hour of labor and contract out the work.

In order to make the policy a bit more prefect, government should do something to tackle the problems, including give a clear definition of dining time should including in working hour, set up the lowest working hour, to protect people have enough working hour and income, prohibit enterprise to contract out some sort of work to avoid the statutory minimum wage and shorten the evaluation period from 2 years to 1 year.