Need for a Living Wage

SCMP December 15, 2013

 

It must be a decade, possibly two, since attendants filled up your car at a petrol station almost anywhere in western Europe. You do it yourself. But here in supposedly rich, technologically advanced Hong Kong, petrol stations are manned by eager attendants who sometimes outnumber the pumps.

This is just one of many pieces of anecdotal evidence pointing to two inter-related issues: the illusion that Hong Kong suffers an overall labour shortage, and the reality of the low level of wages of most workers, especially the unskilled and semi-skilled. The current minimum hourly wage is roughly half that of the US and Britain, one-third of that in France and almost a quarter of that in Australia.

Of course, most people are paid more than the minimum wage but the median wage in Hong Kong, which is roughly double the minimum, lags behind that in most advanced societies. At the macro level, the portion of national income paid to employees is low in the first place and its warped distribution makes it worse.

Poverty so evident in a large minority of Hong Kong's population has many causes but chief among them are low wages and the government's deliberate suppression of welfare and transfer spending. The latter has recently been brilliantly documented by Leo Goodstadt, former head of the Central Policy Unit, in his recently published book, Poverty in the Midst of Affluence . Current chief scrooge, Financial Secretary John Tsang Chun-wah, should be required to read this before presenting his next budget.

But this column is mainly about low wages. The government argues that wages are set by supply and demand in the labour marketplace. The minimum wage was introduced only recently and very reluctantly. It has done something to ease conditions for the lowest paid. But, at the same time, it shows up the huge numbers being paid wages which are so low that, unless supplemented by public housing, CSSA and other conditional assistance, they make normal family life impossible.

The irony is that if incomes were better distributed, the pressure on the government to use its huge revenues for social purposes would be less. But the government itself, as the largest employer, has been a major agent in suppressing the wages of the low-skilled. Government reduction of staffing and use of contractors to provide various services took a large number of unskilled workers out of the civil service, where there are formal pay scales and a degree of collective bargaining, into a situation where they had no bargaining power at all.

Needless to say, the middle to higher echelons of the civil service were not only exempt from this outsourcing but continued to enjoy higher salaries than most of their peers in the private sector. Meanwhile, at the bottom end of the pay scale, the government's undercutting of wages flowed through the whole private sector.

Nor is suppression of wages just seen among the unskilled. The Lamma ferry disaster and the dock crane operators' strike have cast light on how poorly paid are many with exacting jobs and heavy responsibilities.

Naturally, small businesses such as restaurants worry that big increases in wages for the likes of cleaners will make their businesses unviable. But, in most cases, rents are a bigger burden than wage increases. And no business should exist if it cannot pay a wage that provides a minimum living standard. Higher wages will kill some businesses but create new demand for others. They will also drive something badly needed in Hong Kong - higher productivity.

For sure, there are labour shortages in some sectors which cannot simply be filled by increasing wages. Construction is one, given the heavy manual work involved. But mega projects like the high-speed railway were originally justified by the government for their job-creating impact. So there is scant excuse now for using any shortage as a lever for the broader relaxation of labour import demanded by the developer/contractor interests.

The government itself spends a lot on supporting bureaucrats at the Productivity Council but foreigners comment on the poor productivity of Hong Kong's construction sector. Failure to focus on productivity is explained by low wage levels and the fact that corporate profits are more determined by land price inflation than by operating efficiently.

Another factor in wage suppression is the easy availability of domestic helpers. This is not to criticise helpers. But the fact that an unknown but certainly significant proportion are paid far less than the law demands - and have zero job protection - has a twin impact on poverty. It supplants opportunities for older local women to earn a decent wage child-minding, and access to cheap foreign labour increases the gap in living standards between households which can afford helpers, and the bottom 70 per cent of society.

Real wages have been declining as a share of Hong Kong's income. It is time to reverse this socially divisive trend. The government can lead by setting much higher minimums for those working for it via contractors, by not treating strikers as enemies and by keeping a lid on unskilled labour imports. Instead, let us see the lawyers, doctors and so on face competition based on actual skills.

ends