Rising minimum wage expected to raise inflation, unemployment (a bit)

The minimum wage in Hong Kong is expected to go up to HK$37.5 from HK$34.5 per hour. Up to 75,000 employees are expected to benefit from this new law that will take effect on May 1, 2019.

The 8.7 percent increase in the minimum wage represents the highest level since 2011. The Hong Kong government set a minimum wage in the same year and vowed to review it every two years.

Currently, around 61,500 to 75,500 employees earn between $34.5 and HK$37.5 per hour according to the Minimum Wage Commission (MWC), who base their estimates on government data.

Mild

The MWC believes that the impact of the new hourly rate would be mild.

“The MWC estimated that the total wage bill would increase by about HK$800 million to HK$930 million or approximately 0.1 percent,” the Commission says, adding that the impact should be “manageable for most enterprises”.

Eggs will be broken…

It also predicts the new rate would lift the overall unemployment rate by about 0.1 to 0.3 percentage points and inflation by 0.1 percentage point.

“As it would be unlikely for all enterprises to fully pass on the additional wage bills to consumers, the actual impact of the recommended new [minimum wage] rate on inflation should be smaller than the above estimates,” the commission says.

Although the impact is expected to be mild, around 1,390 to 1,450 companies could be affected.

“They are small-and-medium-sized companies concentrated in cleaning services, retail sales and security services,” says Mr Andrew Au Sik-hung, a government economist.

He predicts that these companies will record a deficit instead of a gain once the new hourly rate takes effect.

“These sectors will see a 0.4 percent increase in the total wage bill, representing a rate three times higher than the average 0.1 percent for businesses in other sectors,” he explains, adding that the additional costs would be passed on the consumers and in the form of fired employees.

Meanwhile, insiders from the catering industry – a major sector that hires low-skilled workers – believe the impact of the new minimum wage is not significant.

One of them is Mr Simon Wong Ka-wo, chairman of Hong Kong Federation of Restaurants and Related Trades Limited.

“A lot of the dishwashers are already earning HK$40 per hour, so the impact [of the new rate] is limited. But it may cause a lingering effect, such that the salary of the middle-and-high-level management will be adjusted higher,” Mr Wong says.

He predicts that the staff expenditure in his corporation will increase by 10 percent and the operating costs will be higher.

Economics scholar Mr Andy Kwan Cheuk-chiu also comments that raising the minimum wage will not affect the unemployment rate as much.

“The market has already digested the impacts of the minimum wage. What I concern more about this year is the worsening global economic outlook that could hamper businesses, which will trigger layoffs,” says Mr Kwan.

He also urges the government to adjust the minimum wage once a year instead to better reflect the economic situation.

While labour representatives are still not happy with the lower-than-demanded new hourly rate, Ms Priscilla Wong, chairperson of the MWC, says the minimum wage is to provide the floor to prevent wages from being too low, rather than catching up with the market rate.

The government will publish the new minimum wage in the Government Gazette on January 18, and table in LegCo on January 23.