Defining the scope of our investigation
As a preamble to the debate on the minimum wage, we must first define the terminology with which we are working. A minimum wage is defined as the lowest salary or payment in exchange for labour that employers can legally compensate their workers with,. As of now, there is no global minimum wage; hence, countries’ labour policies diverge depending on its corresponding cost of living. The Minimum Wage Ordinance Cap. 608 was passed in July 2010, and Hong Kong’s minimum wage has been stagnant at 37.5 HKD per hour henceforth.
This article seeks to explore the ramifications and benefits of raising the minimum wage, with a focus on the circumstances of Hong Kong.
The pros
Supporters contend that raising the minimum wage would improve the overall living standards and reduce poverty by spurring economic activity and raising total household spending. It is unsurprising that a meagre wage of 37.5HKD per hour is insufficient for low- and moderate-income families. Evidence indicates that a 10% increase in the wage would reduce the incidence and severity of non-elderly poverty by 1.2-3.7%. Compound this with the fact that inflation (a sustained increase in the price of goods) has outpaced wage increase, and we can conclude that low wage economies require government policies that reduce the income inequality gap, Lastly, it would lower government welfare spending since a portion of workers would lose their eligibility for government benefits, allowing the administration to divert its resources to other sectors.
The cons
Those against a higher wage argue that an increase would be counterintuitive, seeing as grassroots businesses would bear the brunt of its adverse effects, including drastic increases in businesses’ operating costs and tightening profit margins. This creates a chain effect, in which businesses lay off low-skilled workers, cease operation or outsource jobs, reducing the likelihood of upward mobility by cutting off the first rung of the employment ladder. Another argument against government interference would be that it exacerbates inflation, thus lowering demand for goods and subsequently lowering derived demand for workers, which could also increase unemployment.
The situation in Hong Kong
In recent years, the wage rate in Hong Kong has remained stagnant. Some believe that increasing the minimum wage would be a fatal blow to local businesses, in particular to one of Hong Kong’s key industries - tourism. To put this in context, mainland tourists, who make up 78% of all arrivals prior to COVID-19, flock to Hong Kong for its shopping complexes and hotels; hence, the ripple effect of raised salaries would act as a deterrent to tourists.
However, we must also take into account Hong Kong’s increasingly polarised income inequality, as evidenced by its alarmingly high Gini Coefficient of 0.537 and its notoriety as the 11th most income-unequal country in the world. Oxfam HK recommended fixing the minimum wage at 54.70 HKD, in view of Hong Kong’s infamously high living costs (purported to be at 10,494 HKD per month for a one-person family). Furthermore, it reported that more than 1 million employees earned less than a living wage. A rise in minimum wage would undoubtedly improve the quality of life for low-income groups.
To further sway the argument, researchers studying the effects of a higher minimum wage concluded that there was minimal impact on youth employment, which was further supported by studies on empirical labour economics. Taking a more statistical approach, the need for a higher minimum wage is perhaps best evidenced by the discrepancies between Hong Kong’s minimum wage and that of Taiwan and South Korea, who have raised their minimum wages to 43.6 and 58 HKD respectively, after factoring in the corresponding costs of living.
Conclusion
The question of to raise or not to raise and its ensuing emotional heat started more than a decade ago; however, with the widening income gap, it is becoming more evident than ever that the current minimum wage is simply too low as is. Hong Kong’s well-developed economy could do much better, starting by reviewing the wage annually, instead of once every two years and striving to raise its minimum wage gradually by indexing it to Hong Kong’s Consumer Price Index, ensuring it corresponds to half the median wage and supplementing it with policies that mitigate its detrimental effects. Minimum wage policies are not a universal solution to poverty, but raising the minimum wage should definitely be considered by the government, supplemented with policies to mitigate the negative consequences of the raise.
Sources:
Writer: Angela Chan
Editor: Gaille Su
Thumbnail: Alicia Fok
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