Commentary by Andy Mukherjee
Aug. 19 (Bloomberg) -- Pressure is mounting on Hong Kong to adopt a minimum wage, with the city's laissez-faire approach toward labor markets coming in for increasing criticism.
``The Olympics that exemplifies fair play is a perfect backdrop for the Hong Kong government to set in motion the long- overdue process of legislating a minimum wage,'' said an editorial last week in the China Securities Journal, an affiliate of Xinhua, the Chinese state-owned news agency.
``When we take time to reflect on this galling social issue in the spirit of the Olympics, even the most hard-nosed of Scrooges among us should feel a tinge of embarrassment that a large portion of our fellow citizens are shut out from sharing the benefits of Hong Kong's economic prosperity that is the source of our pride,'' the editorial said.
The premise of the argument is flawed.
Minimum wages mustn't be conflated with ``fair play.''
The absence of a state-mandated distortion in the labor market of Hong Kong, a special administrative region of China since 1997, doesn't make employment contracts in the city unjust.
There's no reason anyone in China should feel a ``tinge of embarrassment'' about the city's refusal to keep people unemployed in the guise of getting them decent wages.
As economist Milton Friedman used to say, minimum-wage mandates -- such as those that have existed in the U.K. since 1909 and in the U.S. since 1938 -- are laws that ask employers to discriminate against people who have low skills.
Fierce Debate
A now-defunct proposal to raise New York state's minimum wage to $8.25 an hour by 2011 -- from $7.15 now -- would have seen almost 60 percent of the benefits accrue to households with income at least twice the poverty line, concluded a study last month by University of Georgia economist Joseph Sabia and Cornell University economist Richard Burkhauser.
For every poor worker that would have benefited from a higher minimum wage, others would have lost their jobs.
``Adverse employment effects will undermine the collective income gains,'' the researchers said.
Why should Hong Kong, whose 7 million people are among the most prosperous in Asia, with an average per capita income of $29,000 a year, go down this road?
Housekeepers, drawn mostly from the Philippines, Thailand and Indonesia, now are the only segment of Hong Kong's labor force that have a prescribed minimum wage.
Employee unions in Hong Kong want something similar for domestic workers, of which 86 percent are employed in service industries. Some members of the Legislative Council support their cause. Employers are vehemently opposed.
`Carefully Balance'
Widening income inequality may force the government's hand and compel it to mandate a minimum wage.
Poverty has replaced unemployment as the top concern of voters for the first time, says a new survey by the Hong Kong Transition Project, which has found that a rising wealth gap is now a serious concern.
It's serious enough to have already prompted the Hong Kong government to put labor rights on top of its work agenda. Of late, it has encouraged employers to join a Wage Protection Movement. The idea is to nudge employers to voluntarily agree to pay about HK$5,300 ($678) to cleaners and a minimum of HK$6,600 to security guards for eight hours of work, 26 days a month.
If a review of the program in October 2008 shows it to be unsatisfactory, Donald Tsang, the chief executive of Hong Kong, may have no choice except to ordain a minimum wage.
The International Monetary Fund has asked Hong Kong to ``carefully balance'' labor-market flexibility with wage protection, and if possible consider alternative mechanisms.
The IMF is quite correct. Hong Kong runs a rule-based monetary system, which pegs the local currency to the U.S. dollar.
Ideas and Ideals
That places ``much of the burden of economic adjustment on the flexibility of nominal wages and other prices,'' the IMF said in last year's so-called Article IV consultation report.
It isn't so much that Hong Kong will suddenly face a flight of capital if it mandates a minimum wage for local workers and in the process ends up losing its No. 1 rank on Heritage Foundation's global index of economic freedom -- a position it has held for 14 straight years.
This battle isn't about rankings.
It's about ideas and ideals.
Capitulation to one illiberal proposal will invariably lead to accommodation of other, more deleterious ones. Abdication of one dearly held principle will be followed by a weakening of the entire suite of free-market standards.
It's important for Tsang to stand up strongly against the fake humanism of a state-mandated minimum wage: That way lies not only folly but disaster.
(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Andy Mukherjee in Singapore at amukherjee@bloomberg.net
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