Update on the Statutory Minimum Wage in Hong Kong

Fairly good news!

The Hong Kong government accepted the recommendation of the Minimum Wage Commission (“the Commission”) to establish a formula for setting the Statutory Minimum Wage in Hong Kong (the “SMW”). The formula will be based on the consumer price index, gross domestic product, and average GDP growth over the past 10 years. More specifically, the SMW will be adjusted at the CPI plus 20% of the difference between the latest real GDP growth and the GDP growth rate in the past decade, subject to a cap of 1% (A).

Importantly, if the formula yields a negative number, the SMW will not decrease. In addition, the wage will now be adjusted every year rather than the previous two-year cycle.

While that is very good for the small percentage of Hong Kong’s labor force earning the lowest salary levels, as it will result in a 4.5% increase in their hourly wage starting next year, taking it to HKD41.80 (USD5.34), it is still too low to cover the necessities of food, housing, transportation, and healthcare.

When I last wrote about the SMW, the wage had stood frozen since 2019 at HKD37.50 (USD4.75) per hour during the protests and all through the pandemic. I wrote a paper that was turned into an article in the China Daily newspaper arguing for a much higher increase in the wage—to at least HKD40.00 (USD5.11) per hour. That was back in 2022. I am very happy to see that the Commission decided to increase the wage to above HKD40.00 for next year and to tie it to a formula that is reviewed annually.

As I wrote in my first blog post about the SMW, in addition to having been frozen for four years, the SMW in Hong Kong is not adjusted according to a formula as it is in other jurisdictions. Rather, it has been adjusted based on the recommendation of the Commission, which looks at the overall economic situation, labor market conditions, competitiveness, and social factors such as people’s standard of living.

I also explained that the Hong Kong SMW was established to make sure the lowest-paid workers are not taken advantage of while also ensuring that Hong Kong stays competitive. It is not designed to ensure that workers will earn a “living wage.”

As a result, relatively few workers, or about 17,000 as of this writing (B), earn the minimum wage, with most earning above that level. However, those who do receive the SMW have a hard time surviving in Hong Kong and earn below the poverty level.

This is especially true as Asian currencies have weakened against the USD. Hong Kong’s Linked Exchange Rate System pegs the HKD to the USD. As the USD has strengthened in the past year, it has become cheaper for Hong Kong citizens to travel overseas. However, tourists to Hong Kong faced relatively higher prices and have become cautious in their spending. Additionally, since the HKD is pegged to the USD, Hong Kong must generally follow US monetary policy due to the theory of interest rate parity, which I wrote about in my blog on Hong Kong’s response to COVID. As a result, Hong Kong’s HKMA must wait for the Fed to lower interest rates before lowering its own interest rates to help boost the Hong Kong economy, which has not fully recovered since COVID.

As mentioned, only about 17,000 people earn the SMW in Hong Kong currently. That is a very small number of Hong Kong’s total population of around 7.5 million, demonstrating how low the SMW is. When the SMW was first introduced in 2011, approximately 180,000 earned the SMW. That number fell to 73,000 in 2022 (B). With so few workers now earning the SMW, any concerns about the wage level hurting employment levels are not realistic.

A.     Cannix Yau, Willa Wu, and Lilian Cheng, “New formula for minimum wage to start next year,” South China Morning Post, 1 May 2024, Front page.

B.     Emily Hung, “Hong Kong’s low-paid workers find little to celebrate about as new minimum wage formula gets nod,” South China Morning Post, 1 May 2024, Society.