Left to sink or swim - the HK wage gaps

SCMP May 17, 2006

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The news that minimum wages are being raised across the border is a useful reminder that Hong Kong is rare in not having one - rare not just by Chinese standards, but by those even of the United States, which is celebrated for its flexible labour market, most of Europe and much of developed Asia. So should we have one?

Since 1995, the number of people in the top three income bands - anything over $30,000 - has increased significantly, while those in the bottom two bands - under $6,000 - have also risen. The percentage of people in the two middle brackets - $10,000 to 20,000 - has fallen sharply.

The figures suggest that the minimum-wage issue deserves support. An examination of the motives of those who oppose it - headed by chambers of commerce and other business organisations - offers one of the strongest arguments in its favour. Remember economist Adam Smith's warning: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

If nothing else, a minimum wage would be justified as a partial and inadequate counter to hugely profitable monopolies and oligopolies that daily gouge the public and return huge profits, relative to both equity capital and turnover. These include the banks, power companies and supermarkets, not to mention the government's very own land price manipulation system.

Basically, the lower down the income scale you are, the more - relatively speaking - you suffer from this officially approved gouging. The lower your income, the higher the proportion spent on lighting, power and gas. The lower your income, the more likely you are to be charged for just having a bank account, let alone be able to earn a reasonable return on your savings. The lower your income, the higher the proportion of savings will go through the financial intermediaries' racket known as the Mandatory Provident Fund, rather than directly into a superannuation fund, or through a cheaper medium of your choice.

Of course, there are government expenditures that offset the law of the wage. As in all advanced, and many developing, countries, we enjoy free education to secondary level, subsidised housing and low-cost medical services. However, what is notable about Hong Kong in recent times is that in a desperate attempt to avoid tax increases, and to pay for the likes of the bureaucrats' Tamar palace, the public sector's contribution to some modest income redistribution has been eroded. This has added to widening income gaps resulting from market forces, the tax system and those oligopolistic practices mentioned previously.

The government itself has been directly to blame for some of the widening income gaps. For instance, in pursuit of its goals of cutting public expenditure, it has hived off various activities to the private sector. Low-skilled workers, such as cleaners, who used to enjoy the government's own minimum wage now find themselves paid even less by their new employers.

Contrast this abandonment of the low paid with the fat cat bureaucrats' attitude to their own jobs. Have they been put out to public tender? Have headhunters been set loose to find the best possible candidates at the lowest possible salaries? Have they had to face being sacked for anything other than outright criminal behaviour? No, they are safe, protected by their pay scales and inflation-proof pensions.

Of course, minimum wages and conditions are no cure-all. They can be set too high and impede employment, or so low as to be meaningless. But they reflect the need of any system to be able to distribute income and wealth in a manner society regards as fair, as well as economically efficient.

If we simply believed in following the laws of economics without regard to social issues, we would have no borders, no public education and complete freedom of movement of labour. That is not acceptable in Hong Kong or almost anywhere else. Likewise, any civilised society, wealthy or not, accepts the need to prevent its members from falling below some minimum standard of income and life.

That was why the colonial government introduced public housing and free medical care. It may have gone too far down that road, in particular resulting in the huge gap between public and private housing. But if we are to continue to go down the path of the user-pays principle, bringing public rents closer to private ones and charging more for medical services, we must also look at a minimum wage.

The brutal fact is that, for a variety of reasons, Hong Kong has the worst income distribution of all the developed economies of East Asia. Singapore would run close if the data there included the armies of foreigners paid a fraction of the locals' minimum wage, but compared with South Korea, Taiwan or Japan, Hong Kong is a disgrace.

Income gaps have been widening almost everywhere, a byproduct of mostly beneficial globalisation. But that does not mean we should shrug our shoulders and say it doesn't matter and there is nothing to be done about it.

If Chief Executive Donald Tsang Yam-kuen really cared about a harmonious society, he would address this issue with actions, not platitudes.

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