[SCMP Coumn] Wage Talks cannot Fix ‘Real’ Problems

October 10, 2016

There is a certain monotonous predictability to the protests and posturing around Hong Kong’s annual minimum wage negotiation: labour organizations stamp and shout about the grinding hardships of those working in the bottom rungs of Hong Kong’s job market, and the pivotal importance of a higher minimum wage in lifting people out of poverty; employers’ organizations protest that the world will fall apart if wage rates are lifted, forecasting mass redundancies, decimated profits, bankruptcies and eroded competitiveness.

The practical reality is that neither are right, and they would probably further their respective causes more effectively if they pressed more credible claims.
Why is neither right? Countering the labour claims, the great majority of people in our workforce earn incomes that are multiples higher than the minimum wage. Whatever the outcome of the minimum wage negotiation, there will be no impact on their lives. The great majority of Hong Kong’s poor struggle not because of a low minimum wage but because they are elderly, retired and infirm, or because they have part time or irregular employment. Out of the total of 2.5m households in Hong Kong, just 370,000 are not “economically active” (that is, they contain retired, infirm or unemployed people) and it is here that poverty is concentrated. Of the poorest households earning HK$6000 a month or less more than three quarters are concentrated on the elderly or unemployed – 290,000 of the 370,000.

The reality is that whatever the minimum wage level, it will do nothing to help these people struggling at the bottom of Hong Kong society. Since the introduction of the minimum wage at $28 in 2011, the new rate of $34.5 from May next year will mean the minimum has risen by 23% over the past five years. If the minimum wage were in any way materially important to our workforce, a 23% improvement would imply massive real improvements in livelihoods. This clearly has not been the case. Inequality and severe hardship among Hong Kong’s poorest is as acute today as it has ever been. The causes of our poverty problems sit elsewhere, and haggling over minimum wage levels will contribute little.

As for the threats and warnings of our employers, the evidence of the five years since May 2011 when a HK$28 an hour minimum wage was first set, has shown their forebodings to be preposterously hollow. Rather than see redundancies and higher unemployment since 2011, joblessness has fallen steadily over the past decade – from a peak of 307,000 during SARS in 2003, down to 141,000 in August this year. Bankruptcies peaked in Hong Kong in 2003 at 25,000 and despite a blip up to 16,000 in 2009 after the global financial crash they have never since risen above 10,000 a year. It is true that profits have been under pressure over the past five years for many companies in Hong Kong, but that has more to do with the poor state of the global trading economy since the 2008 financial sector crash than any influence from minimum wage. And Hong Kong continues to be regarded as one of the most ferociously competitive economies in the world.

So my complaint would not be that the minimum wage is too high or too low, but that all of this bother and bluster negotiating a minimum wage level is time and effort ill-spent. Instead we need to recognize that Hong Kong is a highly specialized and high cost economy where average wages must inevitably be high in order to enable families financially to survive here. In general terms, if a company’s competitiveness rests on such low wage levels then it should probably not be operating in Hong Kong in the first place.

For any employer seriously reliant on such immiserating salary levels, he or she should take careful note of developments occurring elsewhere. At the end of last year, Shenzhen’s minimum wage was equivalent to $20, and in Shanghai it was $24. This may be lower than Hong Kong’s minimum, but nowadays not by very much. Beijing has been deliberately lifting the wage minimum nationwide since 2000 by between 12% and 18% a year – in the teeth of protests from employers – with the specific aim of giving workers more spending power to build a stronger national consumer base.

In the US, where the Federal minimum wage is US$7.50, a number of fiercely competitive retailers have raised minimum wages significantly above the Federal minimum. For example, Walmart imposed its own wage minimum of US$10 an hour, with the aim of raising this quickly to US$13. This has added US$1bn to its annual wage bill. But set against revenues of US$486bn last year, the company says this is a small price to pay for more loyal and committed staff, lower job turnover, and reduced spending on training for new recruits.

In truth, there are few major economies worldwide that are not currently wringing their hands over the challenges facing their communities’ poorly paid, and how most appropriately to respond. In Switzerland, this took the form of a formal referendum on whether to introduce a national basic wage to all citizens, regardless of whether they work or not (voters firmly rejected the idea). In the UK and the US where the travails of the blue-collar middle – who have seen so few improvements in their livelihoods over the past three decades – have poisoned local politics, the arguments have moved on from minimum wages and welfare measures to job-protection and barriers against foreign workers.

So we have to acknowledge that persistent poverty, and gaping inequality in communities like Hong Kong, are realities that have to be addressed, not blocked or ignored. This means acknowledging that minimum wages need to rise. But more important, it means recognizing that minimum wages – set at any level you like – do virtually nothing to address the fundamental problems facing our struggling poor. CY Leung’s Executive Council needs quickly to endorse our new $34.5/hour rate, and then move on to forge policies that will actually make a difference.
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