Economy

Minimum wage may not pay off for some

By Andrea Deng (China Daily)
Updated: 2011-05-25 13:54

'Social values'

Some economists warn the minimum wage increase might invite a surge of unemployment because many small businesses cannot afford it. [Photo / China Daily]

"The minimum wage serves a crucial role not just for keeping the wage from falling down, but potentially for changing the entire social values of the underprivileged work force," said Ng, the trade unionist. He underscored that he championed a liberal economy and said that grass-roots workers have always been the victims when the economy fluctuates.

Terrace Chong, an associate professor in the economics department at Chinese University of Hong Kong, laughed at the idea that economists are pedantic robots.

"We economists wish that the market would function most efficiently and the price of the products float freely according to the market," he said. "But people are not products. Dignity is due to them when they offer cleaning services for someone else."

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What about people like John, who work for a company that either will dismiss its aging workers or shut down its business, either way reducing John to unemployment?

Chong said strategies must be developed to extend the social safety net for such people by redistributing income or applying a portion of the Community Care Fund, a trust fund structured to help those who are in financial difficulty but are not covered by the existing social safety net.

On the other hand, John's case might be uncommon. Ng said that most enterprises will raise wages to at least HK$28, or face fines of up to HK$300,000.

Juggling costs

Some employers have been trying to offset the rising wage costs, typically applying such maneuvers as removing payments previously allowed, such as paid lunch and dinner breaks and holiday leaves, so the final payments will show only minor increases.

Catherine Yam, managing director of Centuryan Environmental Service Group Ltd, a cleaning and environmental services contractor with 2,000 employees, said the average cost increase for cleaning companies - mainly small businesses - might be 40 percent.

Her own company offered wages of HK$28 an hour before the statutory minimum became effective.

Tokyo Bakery, a bread company that employed about 200 people, announced on May 3 that all 30 of its stores would close immediately because it could not afford the wages, the rent and the rising food prices.

All employees were thrown out of work overnight, with their salaries, payment for wages in lieu of notice, contribution returns to the Mandatory Provident Fund, and holiday pay all in arrears.

Side effects

A handful of economists and prominent opponents of the minimum wage have spoken out about the side effects of the minimum wage increase, which might invite a surge of unemployment and hence greater wealth gaps. Two of the opponents are Francis Lui, professor and head of the business school of Hong Kong University of Science and Technology, and Richard Wong, economics chair at Hong Kong University.

Chong thinks the impact on employment may have been overestimated. The repercussions should have shown up as early as February, he said, because employers knew the wage increase was coming. In addition, he said, "The unemployment rate fell to a record low of 3.4 percent in March."

The trade unions federation has received more than 100 reports of employees being sacked because of the minimum wage. Most were security guards, cleaners or catering workers.

Yam said she isn't worried about unemployment. There is a widespread shortage of cleaners. The vacancy rate in the industry is between 10 and 15 percent.

Some union staff members think it is too early to speak definitively about the impact. Payrolls will not come into play until the end of May or early June.