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Nearly every two years since it was first set at HK$28 per hour in 2011, Hong Kong’s Statutory Minimum Wage (“SMW”) has been increased based on the recommendation of a commission that looks at the overall economic situation, labor market conditions, competitiveness, and social factors such as people’s standard of living. The most recent revision was in 2019 when the SMW was set at HK$37.5. In 2020, the commission decided to freeze the SMW until 2023 following the 2019 social unrest and pandemic.
Now the minimum wage is up for review again. Let’s hope the Government agrees to increase it substantially above the current level to help alleviate poverty.
While the SMW was established mainly to make sure the lowest paid workers are not taken advantage of while ensuring that Hong Kong stays competitive, the SMW does not ensure that workers will earn enough to cover necessities. That is, the SMW was not designed and is not adjusted to cover the cost of living. As a result, the SMW is too low. Unless the Government increases the minimum wage substantially, the SMW will not provide an acceptable standard of living for Hong Kong’s poorest workers based on the current wage level and cost of living in Hong Kong.
In considering whether the SMW currently covers basics such as food, shelter, transportation, education, and healthcare, it is obvious that it falls far short. A three-person family with one child, where one parent works 208 hours per month (that’s 8 hours a day, 26 days a month, equivalent to almost 50 hours a week), and the other works part-time for 154 hours, will earn HK$13,572 per month based on the current SMW of HK$37.50. This is significantly lower than what is needed to live in Hong Kong. According to a 2018 study by Oxfam based on 2017 prices, a family of three would need to earn HK$20,500 per month. Based on Oxfam’s estimate for cost of living, and the assumptions of a 208-hour work-month (154 hours for part-time), an SMW of HK$52-57 would be required. And note, that is based on a cost-of-living estimate in 2017 prices. Adjusted for inflation, the 2022 cost may be about 7.3% higher, meaning the SMW would need to be around HK$56-61 to meet basic needs of living in Hong Kong.
A main component of the cost of living in Hong Kong is housing costs, and the government does support lower income families through subsidized housing. Oxfam’s figures assume that a three-person household needs to pay approximately HK$9,500 per month to rent a home. While rent in public housing is lower, the average public rental was still HK$2,276 per month, and ranged as high as HK$5,657, as of the end of June 2021, and the wait time to get public rental housing is six years. Those waiting to rent a public flat are forced to rent from the private market. At the current SMW, that usually means renting a subdivided flat, with very little left over for food, education, transportation, and other expenses.
Despite the Government’s efforts to alleviate poverty, of which the public rental scheme is the most significant, 23.6% of Hong Kong’s population remains below the poverty line according to the Government’s Poverty Situation Report for 2020. That is the highest level in 12 years. Note also that the report defines the poverty line for a three-person household as HK$16,000. Clearly, the current SMW is not sufficient to lift a three-person family out of poverty.
A key consideration when deciding whether to increase the minimum wage is the effect on unemployment. The argument is that when the floor price of labor is set above the equilibrium price level of labor, employers will demand fewer workers, thereby increasing unemployment. While this may be true in some segments of the labor market, from 2010 to 2019 (before Covid) Hong Kong’s overall unemployment rate fell. In fact, according to the Minimum Wage Commission, introduction of the SMW encouraged people to enter the labor market and led to a 60% decline in the number of Comprehensive Social Security Assistance unemployment cases from 2011 to 2019.
It is noteworthy that the percentage of all workers earning the SMW declined from 6.4% in 2011 to only 0.7% in 2019, equivalent to about 21,200 workers. So, while the unemployment rate increased from 2.9% in 2019 to 5.2% in 2021, it is unlikely that a change in the SMW will affect the overall unemployment level with such a small number of employees earning the SMW.
While there has been a lot of focus in Hong Kong on the effects of a minimum wage on unemployment and competitiveness, there has been less focus on whether the minimum wage enables the working poor to support themselves. The current SMW of HK$37.5 per hour does not provide for that. The Minimum Wage Commission should set the SMW much higher considering the cost-of-living benchmarks such as the Oxfam study and the Government’s poverty threshold. Considering that the Government is the largest employer in Hong Kong and pays many of its non-skilled workers the bare minimum SMW, and with even more people living in poverty after the pandemic, increasing the SMW will do more good than harm and help alleviate poverty in Hong Kong.
You can read more about this topic in an article I wrote jointly with Professor Yip of HKU here https://www.chinadailyhk.com/article/a/274524.
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