HR Management and Minimum Wage in Hong Kong

Human Resources Management: How to Improve Minimum Wage Policy Management in Hong Kong

The objective of this research is to analyze the advantages and disadvantages of minimum wage legislation in Hong Kong. When hike minimum wage can help lower skilled worker. This study will conduct an evaluation of the minimum wage hiking and how it can help the lower skilled workers and will additionally compare benchmarking minimum wage legislation with other countries, for example the standard of minimum wage.

Following minimum wage legislation the primary problems that employers and employees faced included for employers the turnover rate of lower-wage workers and how to reduce the cost of training that affects the quality of service and the working attitude and behavior of employee lack of enthusiasm. For employees problems included the increase in the unemployment rate and reduction in fringe benefits including such as medical insurance. Included in this study will be the varying policies on minimum wages in other countries including multiple minimum wage rates, differentiated standards of minimum wage by industry and type of work performed.

Research Questions

Research questions in this study include those which pose the questions stated as follows:

(1) What are the different policies of various countries on minimum wage standards?

(2) How are the varying levels of minimum wage based on type of work performed determined?

(3) Since some countries have prescribed minimum wages for different population groups to ensure their specific needs are met, how fair are these policies and are these policies on minimum wage effective?

Methodology

The methodology of this study is qualitative in nature and is such that examines the literature in this area of inquiry.

Definition of Terms

(1) Minimum Wage: Defined by the International Labor Organization as "the minimum sum payable to a worker for work performed or services rendered, within a given period, whether calculated on the basis of time or output, which may not be reduced either by individual or collective agreement, which is guaranteed by law and which may be fixed in such as way as to cover the minimum needs of the worker and his or her family, in the light of national economic and social conditions." (Varkkey and Korde, 2012)

Literature Review

The work of Partridge and Partridge (2012) reports that there have been several studies conducted recently that have presented challenges to the tradition al idea that minimum wage raises brings about a reduction in employment. Partridge and Partridge state that the conventional view on raising the federal minimum wage has been held to be a way to reduce poverty and to make provision of a living wage'. (Partridge and Partridge, 2012, p. 393) The declining value of the real minimum wage in the 1980s is reported as identified as potentially resulting in 30% of the increase in wage inequality. Inflation serves to erode the fixed minimum wage, every few years there are reported to be calls to increase state and federal minimum wage rates which holds the minimum wage issues at the forefront of policy discussion." (Partridge and Partridge, 2012, p. 393)

Economists have issued warnings that raising the minimum wage has had "deleterious consequences including losses in employment reduced general training and off-setting reductions in fringe benefits." (Partridge and Partridge, 2012, p. 393) It is held by traditional views that losses in employment should be among those who are less-skilled workers and that the minimum wage is expected to benefit." (Partridge and Partridge, 2012, p. 394) It is reported that the standard minimum-wage model is the primary supply and demand model and it is reported that the imposition of a wage floor "in its simplest form…above the equilibrium wage reduces employment, although the real-world complexities such as the incomplete minimum wage coverage can complicate the analysis." (Partridge and Partridge, 2012, p. 394)

The monophony labor market model is reported to recently been the focus of attention in the debate over the minimum wage. It is reported that from this view if the employer is constrained with the supply of labor then increases in minimum wages results in gains in employment. Reported as the result of the increase of minimum wage is one that cannot be foreseen with a theoretical absoluteness therefore the issue of minimum wage being raised is stated to be an issue that is empirical in nature.

Siu and Lam (2013) reported that there is disappointment among union members in Hong Kong since the new minimum wage "is still only UK$150 more than it was 15 years ago and predict it will deepen the shortage of recruits." (p.1)

Sui and Lam (2013) report that for domestic helpers who had entered into contracts the minimum wage rate would increase by HK$90 per month following the decision of the government. The new monthly minimum wage is reported to be HK$4,010 and for helpers whose bosses fail to provide sufficient food the monthly allowance would be raised by HK$45 to HK$920 per month. The unions of helpers stated that following the reductions and freezes in the statutory minimum wage during hard economic times the wage is only HK$150 per month above the level of 1998.

The report states that the minimum wage for foreign domestic helpers in Canada is the same as for local workers. In addition, New York and California have both approved a bill of rights to provide the same level of minimum wage to locals and foreign domestic workers. The minimum wage in Canada is different among provinces reported at about HK$75 per hour and in Taiwan and Singapore the monthly wage are reported at "HK$4,100 and HK$3,000 respectively." (Sui and Lam, 2013) There are presently in excess of 300,000 helpers which are foreign in Hong Kong which have come from the Philippines and Indonesia. The governments of Manila and Jakarta are reported to be discouraging their citizens from working in other countries and the result is that Hong Kong has had to turn to Bangladesh for recruiting new workers.

It was reported by the Association of Corporate Counsel in the work of Lovells, et al. (2013) that the "Minimum Wage Ordinance (Cap. 608) (the "Ordinance") came into force on 1 May 2011 and introduced a statutory minimum hourly wage rate of HK$28. With effect from 1 May 2013, the statutory minimum hourly wage rate will be increased for the first time to $30 per hour, an increase of 7.1%." (p.1) It is stated that the Minimum Wage Commission "is tasked by the Ordinance to make recommendations to the Chief Executive regarding the statutory minimum wage rate at least once in every two years. When doing so, the Commission must have regard to the need to maintain an appropriate balance between the objectives of forestalling excessively low wages and minimizing the loss of low-paid jobs and to sustain Hong Kong's economic growth and competitiveness." (Lovells, et al., 2013, p.1) In the Commission's 2012 report published in October a recommendation was made of an increase "of HK$2 in the statutory minimum wage rate." (Lovells, et al., 2012, p.1) The Commission's report stated the following estimations:

(1) Although the number of employees earning an hourly rate below HK$30 in May to June 2011 was 327,200 accounting for 11.7% of all employees, the number of employees affected by the increase might be less; (Lovells, et al., 2012, p.1)

(2) The recommended amendment would increase the total additional wage bill to around HK$2billion (an increase of 0.3%); ( Lovells, et al., 2012, p.1)

(3) The overall unemployment rate would increase by about 0.3%; and (4) The Composite Consumer Price Index would go up by about 0.3 to 0.4%. (Lovells, et al., 2013, p. 1)

The Chief Executive in Council is reported as having adopted the proposals of the Commission and the amendments to the Ordinance and the Employment Ordinance (Cap 57 were stated to have been "gazetted and tabled." (Lovells, et al., 2012, p.1) The Ordinance is reported to be such that provides coverage to "all employees, except live-in domestic helpers, student interns, and work experience students during a period of exempt student employment." (Lovells, et al., 2012, p.1) The calculation reports that the statutory minimum wages equals the total number of worked hours during the wage period multiplied times the statutory minimum hourly wages rate. The 'hours worked' are inclusive of any time the employee is in the workplace or is traveling in relation to their employment. Time that is unworked is not included and may include holidays, vacation days and paid sick days. In this specific calculation the wage period is one month. If the wages paid in the wage period are less than the statutory minimum wage the employee should be paid the difference. If the employer fails to pay the statutory minimum wages the employer becomes liable to be fined and imprisoned. The fine amount is stated at HK$350,000 and the term of imprisonment stated at 3 years. The employer is not allowed by law to contract out of the statutory required minimum wage and any contract provision that attempts to reduce the wage is held as void. (Lovells, et al., 2012, paraphrased) In terms of record keeping, beginning May 1, 2013, employers are required by law to keep records of the employee's total worked hours where the employee's wage during any wage period total less than $12,300 which has been increased from HK$800 and when an employee is averaging more than $12,300 per month the net wages of the employee may be reduced by the exclusion of unworked time that is paid is less than $12,300 however, the Ordinance required record keeping will still be in effect. Therefore, it is necessary that employers keep good records of the number hours that each employees work. (Lovells, et al., 2012, paraphrased) It is stated to be critical to note that the calculation method and the Ordinance key requirements will not change on the first day of May 2013 and employers were required that their systems must be updated so that they are paying all their employees at least the statutory minimum hourly wage rate of HK$30." (Lovells, 2012, p. 1)

The Minimum Wage Commissions in its "Summary of Views Collected at Consultation Meetings" reports that in its initiative to examine the views and related concerns on the impact of the statutory minimum wage initiation as well as on the rate of the statutory minimum wage, the Commission held consultation meetings with 105 stakeholder groups in the fourth quarter of 2011 and reports that stakeholders that participated in the meetings included: (1) major trade unions; (2) major employers' associations; (3) associations of small and medium enterprises (SMEs); (4) associations of low paying sectors. (Minimum Wage Commissions, 2013, paraphrased) In the Commission's 'Summary of Views' it is reported that the impacts on the economy of the statutory minimum wage rate includes the view held by employers' associations and employer representatives that the beginning SNW rate began during a time of economic prosperity in Hong Kong and did not adversely affect the varied enterprise and sectors in Hong Kong. However, the real affect of Statutory Minimum Wage could not become clear in the short-term but in the long-term the affects because all too clear. Due to the economic environment of 2012, Statutory Minimum Wage had an adverse impact on the employers since low-paid workers wage grew to $28 per hour and this required employers to raise their prices so they could cover the labor costs that had expoentiatlly increased resulting in "wage-price spiral and inflation." (Minimum Wage Commissions, 2013) It is reported that labor unions and labor policy concern groups held that the statutory minimum wage rate implementation had not caused the economic problems that were predicted and neither had business been required to close at a rate predicted. Mitigation had been utilized by employers to deal with the changes occurring due to the implementation of Statutory Minimum Wage and it is reported that while labor costs had increased that there had been no intensification of inflation. In fact, the increase in the wages boosted the purchasing power of consumer/workers and the local economy had been given a boost and ultimately increased wages had worked to improve the overall economic outlook in Hong Kong, (Minimum Wage Commissions, 2013, paraphrased) In regards to the impacts on the labor market by the implementation of the statutory minimum wage, it is related that labor unions were of the view that the implementation of the statutory minimum wage rate had resulted in the workers being guaranteed an income level that resulted in improvements in their standard of living with no cause of loss of jobs and the unemployment rate not being driven up. As well the Statutory Minimum Wage being introduced movitated workers and gove them incentive encouraging women and the elderly to re-enter the labor market and ultimately raised the total employment in Hong Kong. The Minimum Wage Commission reports that the rise in the minimum wage had benefitted Hong Kong in all aspects and it had been agreed upon by all that the move had been beneficial to both workers and the economy. Finally, employers had also benefited from the increase in the statutory minimum wage. Labor market mobility was enhanced. The statutory minimum wage had been introduced during a time of economic growth and prosperity while many new businesses wee opening their doors and there was a growth in demand for labor in specific sectors including security, catering and estate management industries. Mitigating measures used by some enterprises for offsetting the increased statutorty iminimum wage included reduction in non-wage benefits, changing employment terms as well as other initiatives. Some of the enterprises had transferred the increases by raising costs to consumers. However, it is reported that there were some enterprises that could not handle the rise in the statutory minimum raise and due to their need to control the costs of labor ultimately loss some of its labor force. According to some of the employers' associations "the significant pay rise for workers in the low paying sectors or lower-skilled occupations upon the implementation of Statutory Minimum Wage, employees in other industries and occupations would expect to have comparable pay rise. Enterprises thus had to face additional labor costs on top of those required for meeting the statutory requirement of Statutory Minimum Wage." (Minimum Wage Commissions, 2013) It is related that the primary concern of think tanks and policy research institutes were the impacts of the statutory minimum wages on the employment opportunities for those know to be "marginal and vulnerable workers" which is reported to be inclusive of "the elderly, the disabled, inexperienced young people, trainees and low skilled workers, etc.)." (Minimum Wage Commissions, 2013)

The implementation of the statutory minimum wage rate is reported to have driven up property management fees. It is reported that for those property owners with financial means that were limited and particularly those who owned single block private residential buildings that costs were saved through reduction of security guard services to one shift by doing away with the night shift service. Employment chances for security guards that are elderly were impacted. Employers' associations and employer's representative of the catering industry noted that the profit margin of restaurants that were small and mid-sized was marginal. Specifically stated is that the implementation of the statutory minimum wage, in a labor intensive industry has incrased the labor cost significantly. Restaurant employers did not find themselves able to pass the additional cost of labor on to consumers so the quality and quantity of food had been their method of attempting to cope and many restaurants simply closed their doors. This resulted in market share shrinkage and displacement by larger or franchise restaurants. It is posited by labor unions that the reason so many restaurants closed was due to high rent and was somewhat but not significantly attributed to the rise in the statutory minimum wage. (Minimum Wage Commissions, 2013, paraphrased) Additionally reported was that retail and catering industry employer representatives related that in the past who were paid on the lowest scale were motivated to provide higher quality service and to perform better so that they could earn better wages however, at the time the statutory minimum wage was introduced and employees knew that they would receive a certain wage, the motivation to continually improve their service and performance fell and this likely resulted in a drop in the quality of service provided. (Minimum Wage Commission, 2013, paraphrased) SME associations and employer representatives from the elderly care home industry are reported to have expressed "that owing to the obnoxious nature of the industry, they suffered persistent labor shortage. As the wages of other sectors rose upon the implementation of Statutory Minimum Wage, an increasing number of employees left the industry, thus affecting the service quality of elderly homes. Moreover, the cost in wages and rental constituted a huge share of the gross expenses of elderly homes. Some operators in the industry started to downsize their business since they were unable to bear the increasing operating cost. Enterprises might choose to relocate their business to the Mainland if labor costs were to increase further." (Minimum Wage Commissions, 2013)

Stakeholders form the cleaning industry reported that the implementation of the statutory minimum wage has resulted in more cleaning workers to switch to other sectors. Companies report having to pay wagers higher than the statutory minimum wage level to recruit suitable workers and as well the assessment of premium employee's compensation was conducted on the basis of the payroll and the related expenditure is reported to have risen with "wage uprating." (Minimum Wage Commissions, 2013)

It is reported that some of the smaller operators in the industry shut their businesses down due to the high operating cost. Stakeholders in the logistics industry related that their industry's staff turnover was critical following the statutory minimum wage implementation with a great many of its frontline workers and those workers in the junior to middle management sectors switching to sectors that have employment terms which are superior. In a climate of labor shortage, the increase in costs of labor combined with high rental rates and gasoline prices, the business environment was becoming more challenging for the logistics industry. It was expressed by some think tanks and policy research institutes that the beginning statutory minimum wage rate "had negative impact on SME's." (Minimum Wage Commissions, 2013)

Some think tanks / policy research institutes expressed that the initial Statutory Minimum Wage rate was such that negatively impacted SME's with margins that were low profit. When compared with larger enterprises that were more able to attract talented workers by the offerings of better "career development, opportunities and prospects, SMEs had no competitive edge in recruitment other than offering wages higher than the Statutory Minimum Wage level. This resulted in a considerable increase in labor costs." (Minimum Wage Commissions, 2013) Other trade associations related that some enterprises were unaffected originally by the statutory minimum wage but had to raise wages to retain employees resulting in rising costs of labor. (Minimum Wage Commissions, 2013, paraphrased)

According to the Commission it was held by the labor unions and the groups on labor policy concerns that the statutory minimum wage should have the capacity to provide workers with an income level so that they were able to live with dignity.

Labor unions and labor policy concern groups generally considered that Statutory Minimum Wage should be able to guarantee the income level of workers for them to live with dignity. MWC, in deliberating the Statutory Minimum Wage rate, should put emphasis on the basic living needs of individual workers and their families, and collect more data on workers' living standard and basic needs as indicators. They also expressed that the Statutory Minimum Wage rate should not be lower than the amount of the Comprehensive Social Security Assistance (CSSA) and it should be adjusted in line with inflation. Individual organizations further suggested that MWC should consider dependency ratio or gross domestic product per capita when deliberating the Statutory Minimum Wage rate so that workers could share the fruits of economic development. MWC should also take into account the wages and employment situation in Hong Kong, such as the median wage, wage differential, workers' work incentive and unemployment rates of different types of workers." (Minimum Wage Commissions, 2013)

It was recommended by labor unions and labor policy concern groups that the next statutory minimum wage rate "should not be lower than $33 per hour" and that based on the CSSA amount for a family with two person, the labor union held that the statutory minimum wage rate should be "set at $35 per hour so as to cover the basic living expense of workers and the family of those workers." (Minimum Wage Commissions, 2013)

It was held by the employers' associations and employer representatives that the statutory minimum wages should "only be a wage floor to protect the low-paid works, while the wages of other workers should be determined by the demand and supply in the labor market and that the MWC should adopt the next Statutory Minimum Wage rate, balance the interests of various parties and refrain from setting too high a rate which would impact on the economy and society negatively. In reviewing the Statutory Minimum Wage rate, MWC should also consider the prevailing economic cycle of Hong Kong, the overall economic development and business environment, impact of Statutory Minimum Wage on inflation and prices, additional labor costs to be borne by enterprises arising from the increase in statutory benefits and other expenses induced by Statutory Minimum Wage and the impacts of Statutory Minimum Wage on workers in different industries, age groups and geographical locations. Employers' associations and employer representatives generally recommended that the Statutory Minimum Wage rate should be maintained at $28 per hour. SMEs with limited financial means and competitiveness were unable to control their costs through bulk purchase and mass production as adopted by large enterprises. The impact of Statutory Minimum Wage on SMEs was therefore greater and an exceedingly high Statutory Minimum Wage rate would hamper their survival. SMEs might eventually be squeezed out of the market by large enterprises. Some employer representatives expressed that the current Statutory Minimum Wage rate had already greatly increased the wage bill of enterprises. If the Statutory Minimum Wage rate was raised to $33 per hour, some enterprises might find it unsustainable and might choose to relocate their business to other places or even close down the whole business." (Minimum Wage Commissions, 2013)

The majority of the employers' associations and employer representatives expressed the view that as the statutory minimum wage had been in effect for just a short time, it was extremely difficult to understand that impact of the statutory minimum wage and that this makes a requirement that the MWC "keep in view related statistical data and commence the review on the Statutory Minimum Wage rate only when adequate data and evidence were available." (Minimum Wage Commissions, 2013) It was held by labor unions and labor policy concern groups that worker's purchasing power was eroded by high inflation and that the review should be conducted by the MWC immediately to ensure that the statutory minimum wage would catch up to rates of inflation so that the standards of living for workers would be maintained.

It is reported in the work of Varkkay and Korde that "Statutory minimum wage regulations are applied in almost 90% of the countries that have signed up for International Labor Organization (ILO) membership. These countries have ratified one or both Conventions of the ILO on minimum wage fixing and many other countries have established minimum wage fixing procedures, even though they have not ratified the relevant Conventions." (2012) Varkkay and Korde additionally report that the implication is that an international agreement exists in this area. Specifically stated in terms of differences in minimum wages in various countries is "There are immense differences between countries in terms of the number of minimum wage rates set for different regions and/or different occupations, age, qualifications, etc. within the same country. Some countries have only one national minimum wage rate, whereas others have multiple minimum wage rates depending on regions, occupations, qualifications, etc." (Varkkay and Korde,2012) The Indian system is reported as very complicated since "in addition to national minimum wage rates -- states can set regional minimum wages following a recommendation from a tripartite body in the regions where wage bargaining has a very low coverage. In some countries minimum wage rates are set through collective bargaining in sectors which are strongly unionized." (Varkkay and Korde, 2012) The minimum wage representation in Asian countries is reported in the following table labeled Figure 1 in this study.