Chairman's Message
Chairman's Message - Careful Assessment on Impacts of Minimum Wage Adjustment

Dr. Charles Yeung 【President】

Silver Bauhinia Star, JP

Swiss voters overwhelmingly rejected a proposal to introduce what would have been the highest minimum wage in the world in a referendum last month, worrying that rising wages would seriously erode the country’s competitiveness. The Swiss experience has triggered concern and discussion in Hong Kong’s society. CGCC attaches great value to harmonious labor relations. We have supported many policies safeguarding employees’ interests on the premise that heed has been paid to the affordability of enterprises and employers, as well as the policies’ implications on business and economic development. We have earlier expressed our views on the next year’s minimum wage level to the authorities. Here I would like to briefly share with you CGCC’s position and opinions on this topic.

Minimum Wage Weakens Market’s Adjustment Function

The incomes of grassroots employees have notably improved since the implementation of the minimum wage. Data from the Government’s Census and Statistics Department show that the median hourly wages of four low-paying sectors for May to June last year in Hong Kong have exceeded HK$30: HK$33.3 for estate management, security and cleaning services; and as high as HK$37.2 and HK$40.9 for restaurants and retail trade respectively. The figures indicate that the statutory minimum wage (SMW) has provided considerable protection for low-income earners. Given changes in supply and demand in the labor market, many employers are in fact hiring grassroots employees at wages higher than SMW, evidencing that the workforce can be duly adjusted by the free market economy in Hong Kong.

We are concerned that the natural adjustment mechanism of the labor market will be disrupted if SMW is reviewed too frequently or raised too much. It is easier for big corporations or chain businesses to adjust to market changes, but Hong Kong’s SMEs - generally operating on a small scale and low profit margin - are more vulnerable to minimum wage hikes, which would further add to their operating costs and thus weaken their business performance and competitiveness.

What is more, the remuneration packages of other ranks are likely to adjust in tandem with rises in minimum wages. The ripple effect so caused means higher pressure on business operation. In such a case, more businesses cannot but to pass on the extra costs to consumers, which will in turn push up inflation. Such a cause-and-effect cycle of endless wage hikes and inflation is unfavorable for the stability and development of society as a whole.

Putting Objective Assessment Mechanism in Place

CGCC believe that as the minimum wage has a strong bearing on enterprises’ manpower management and operating costs, any adjustment in SMW should be carefully examined. Many companies are still adapting themselves to the current SMW rate, which was raised to HK$30 as recently as in last May. And the impact of the higher minimum wage has yet fed through to business operational efficiency, manpower costs and social areas like the supply/demand of local labor and inflation. Without comprehensive data, the business community can hardly have objective assessment on the SMW level for the next year.

Therefore, we look forward to the SMW review being postponed to next year when more data will be available for us to make objective analysis and assessment. For the longer future, the relevant authorities should consider setting up a more comprehensive, prudent and objective mechanism for SMW assessment. When reviewing the SMW level, the authorities should not only take microscopic factors such as Hong Kong’s employment situation, wage growth and inflation data into account, but also pay close attention to changes in the global economic scene, business environment and people’s living standard.

Paying Heed to Potential Impacts of Changes in Economic Environment

There are still uncertainties in the global economic outlook. Hong Kong’s export and service sectors show signs of slowing growth, which could translate into considerable pressure on businesses in the coming year. As the macro economic climate may possibly turn bad, the minimum wage may become a “catalyst” that multiplies the burden on businesses. It will impose heavy pressure on SMEs in particular. Due to higher costs, some of them may even further shrink in size, which will have widespread impact on the labor market and overall business environment.

To sum up, we believe that Hong Kong’s labor policies should avoid over-regulation. Instead, more space should be allowed for negotiation between employers and employees, so that the market can be more flexible in determining wage levels and can adjust to changes in business development and labor supply and demand. This will in turn enhance Hong Kong’s business environment and hence its long-term competitiveness.