Fair play on pay day
Hong Kong has, by many measurements, the highest income disparity of any developed economy worldwide and of comparable Asian cities. The United Nations development programme is just one highly respected body whose reports make this clear.
What is more, studies consistently show that income disparity has been getting worse for the last two decades. The ratio of income between the upper 50% and lower 50% income households increased from 2.6 times in 1989, to 3 times in 1999, and to 3.6 times in 2009. Real per-capita GDP grew 62.9% over those two decades; the average income of high-income households increased by 34.7%, while that of low-income households dropped by 3.3%. The result is that, as of the first half of 2009, Hong Kong had more than 1.2 million people living in poverty (on less than half of median income).
This has led to increasing public demands for government to make reduction of income disparity a top priority policy objective. After more than a year’s debate, chief executive Donald Tsang Yam-kuen finally pledged to legislate for a statutory minimum wage in his 2008 Policy Address. However, how to set the minimum wage remains a hotly debated issue, even after the bill has been passed by the Legislative Council.
It would be outrageous if the statutory minimum wage does not enable an average family to meet their basic needs and live out of abject poverty. So what are basic needs, and how much do we need in order to satisfy them? The Hong Kong Council of Social Service conducted a “Basic Needs Study” in 2005 and found that an average employee should earn HK$5,391 a month in order to meet the basic needs of the family; this assumed an average household size of 3.1, with an average of 1.67 working members (essentially, one bread winner for nearly every two people).
The Basic Needs Study drew on the methodology and results of a similar process conducted by the Government in 1996 to set the level of Comprehensive Social Security Assistance. It is a scientific and precise exercise based on a basket of commodities that people of different age groups and both genders need to live in Hong Kong. For example, an average male adult needs 2,400 kcal a day, which was translated into 240 grams of rice and 320 grams of vegetables. Other commodities included clothes and household appliances, such as two sets of school uniform for a student, one refrigerator for a family to be used for 8 years, and so on.
After compensating for inflation, the minimum level of income a worker must make to meet the needs of his or her family in 2009 was HK$5,930; this is equivalent to an hourly rate of HK$32.6, assuming 26 working days per month and seven paid working hours daily. We selected seven paid working hours per day and discounted the lunch hour because of the trend among employers to hire on a part-time or casual basis, which means that many low-paid workers do not have a paid lunch hour. This is also in line with the “actual working time” definition adopted by the Low Pay Commission in the United Kingdom.
In recommending a minimum wage level, the Provisional Minimum Wage Commission will focus on what it calls a “basket of indicators” under the categories of general economic conditions, labour market conditions, competitiveness and standard of living. This means the PMWC will examine mostly macro-economic, trend and comparative data. For example, the standard of living section includes only inflation and wage growth indicators. Such data do not answer the basic question: is a particular hourly wage enough to live on?
The public expects the commission to give clear reasons when it proposes a minimum wage; people expect an objective formula, as well as a corresponding adjustment mechanism. If the PMWC cannot present a clear, objective formula, it will risk giving the community the impression that it is simply producing an arbitrary figure. And if that figure is at the low end, the commission’s work will be denounced as collusion between the government and the business sector.
The setting of the statutory minimum wage is bound to be a political process. It is almost certain to be somewhere between the HK$24 and HK$33 proposed respectively by business and labour representatives. However, any lack of transparency will provoke more public debate and discontent.
Our Basic Needs Study provides a transparent and scientific basis for setting and adjusting the minimum wage; the PMWC’s basket of indicators must do the same.
* This article was published on the Opinion Page of South China Morning Post
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