JUGGLING THE ECONOMICS

Throughout this feature, you will have heard a lot about how the minimum wage will affect the economy. But how will Hong Kong’s financial future be shaped by this change?

“The main benefits are narrowing social frictions, and making people on low pay feel that they’re being more respected,” says Duncan Innes-Ker, Analysis and Senior Economist at Economic Intelligence Unit – China, and a specialist in Hong Kong’s economy. “The negatives are some jobs will be lost. There’s always lost jobs with minimum wage laws.”

Most economists agree with Innes-Ker, in that a minimum wage will necessarily lead to higher unemployment. According to the latest Annual Earnings and Hours Survey conducted by the Census and Statistics Department, the new minimum wage rate will affect an estimated 314,600 employees; but how many will lose their jobs due to rising labour costs?

“I don’t think, in practical terms, it will have a dramatic impact on unemployment,” says Inner-Ker. The Provisional Minimum Wage Commission (PMWC), appointed by the Labour Department to recommend a minimum wage rate, estimates that losses will be “relatively mild,” at less than 50,000 jobs.

The precise numbers, however, may never be clear, particularly with the current booming state of the economy. This surge, according to Innes-Ker, should reduce the impact on low-skill workers: “If security guards are being laid off, they may be able to find other jobs in this economy that they might not have in a tougher climate.”

So, what about inflation? “In theory, it would have an upward impact on inflation by pushing up wages,” says Innes-Ker. However, he thinks that, at a $28 level, it will be negligible. “The things that really drive Hong Kong’s inflation are rent, property sector prices and food prices, none of which are really closely related to minimum wage,” he states. Largely in agreement, the PMWC estimates less than a 0.4 per cent increase in Hong Kong’s Consumer Price Index, which it regards as a mild impact.

Steven Hsieh

A SUMMARY GUIDE

The wage
The statutory minimum wage law entitles all employees to an hourly wage of at least $28.

Why it was enacted
The Labour Department indicates that the Minimum Wage Ordinance is aimed at “striking an appropriate balance between forestalling excessively low wages and minimising the loss of low-paid jobs while sustaining Hong Kong’s economic growth and competitiveness.”

Who it affects
The law covers almost all workers in Hong Kong and, of particular importance, will benefit those who currently earn less than $28 per hour. There are an estimated 314,600 people, or 11.3 per cent of Hong Kong’s workforce, who fall into this category.

Who is ineligible
Domestic helpers and student interns are not eligible to a minimum wage.

The starting date
The statutory minimum wage comes into effect on 1 May 2011.

Meal breaks
The Minimum Wage Ordinance does not require employers to provide paid meal breaks or rest days. The Labour Department’s recently released document Statutory Minimum Wage: Reference Guidelines for Employers and Employees indicates that payment for meal breaks and rest days is a matter to be agreed between the employer and employee on an individual basis.

The future
The Minimum Wage Commission is responsible for reviewing the rate and recommending any changes at least once every two years. The $28 rate can, and probably will, change at some point in the future.

Want to know more?
Contact the Labour Department, the agency responsible for enforcement of the Minimum Wage Ordnance. See www.labour.gov.hk for contact details.

Steven Hsieh

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