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Recently, starting from May 1, 2013, Hong Kong had issued an increase of the Statutory Minimum Wage (SMW) from $28 to $30. Setting SMW at an appropriate level is vital to striking the balance between the objectives of forestalling excessively low wages and minimising the loss of low-paid jobs, while sustaining Hong Kong’s economic growth and competitiveness (“2012 report of the minimum wage commission,” 2012). To fulfil this aim, the government have decided to increase the minimum wage rate in order for the people receiving the low-paid jobs to have a more fair salary.
This paper will first discuss about the stakeholders that will be affected by the increase of the wage rates namely the workers earning the SMW rates, the employees earning above the minimum wage, the firms, the government and the society as a whole. All of the effects of this social policy, both positive and negative that will be implied to these stakeholders will be discussed. Then, the effects of this social policy will be compared with R. Titmuss’ teachings in the objectives of a social policy. Finally, an evaluative comment of what the government should have done to maximise the benefits of this policy and minimising its drawbacks will be given as a conclusion.
Effects on Stakeholders
The first stakeholder that will be most affected by this social policy is the workers living by the SMW rate. These workers are usually blue-collared workers whose jobs require minimum requirements and manual labor. The minimum wage is used to provide a wage floor for them not to be exploited by the firms, but these workers are usually still the lowest paid amongst the society. They are referred to as the working poor in which the workers are still living below the poverty line of Hong Kong even when they already have a job. As shown by Lam (2013) At the article which has been released by the Commission of Poverty, Hong Kong had just implemented the poverty line in which a one-person household is living at below HK$3,600, two-person households living below HK$7,700, and four-person households living below HK$14,300 monthly. In Hong Kong, around 19.6 percent of the population were living with less than the poverty line at the year 2012.
By the increase of the minimum wage by roughly 7%, the government wanted to tackle the problem of the working poor especially with the rising costs due to inflation and rapid increase in the price of land. According to the Trading Economics (2013), from the year 1981-2013, Hong Kong’s inflation rate have averaged at 4.6 percent while the Global Property Guide (2013) showed that the price of properties in Hong Kong had skyrocketed by 73% over the past 3 years. These rising costs had brought problems to the workers living in the SMW as they usually do not experience an increase in their salaries if the government does not intervene. Their living standards will constantly fall every year and in order to prevent that from happening, the Hong Kong government implemented the increase in the SMW at May 1, 2013.
The first time Hong Kong had provided the Statutory Minimum Wage of $28 is at 2011. According to Oxfam’s report on April 17, 2012, “59.5 per cent reported no improvement with the introduction of the Ordinance”. Oxfam (2012) explained that even when 70 per cent of the low income workers experienced increased wage rates, the employers reduced the remuneration packages, paid rest days, and working hours. Overall, it leads to similar income when the Ordinance have not been introduced which does not lead to any increase in the standard of living of the working poor. This might reoccur with the increase of the SMW, as the employers would want to cut back on the costs. The increase of the minimum wage in Hong Kong might not lead to an increase in the total income of the workers, but might only lead to a shorter working hours or even a decrease in their total income.
Another stakeholder that would be affected by the increase of the minimum wages are the firms, especially the small to medium sized ones. Because most of their staffs are earning minimum wage, the firms will either need to either reduce the working hours of their employees or face an increase in the labour cost. If the businesses were to reduce the employees or the working hours, the quality of the products or services provided will most likely degrade over time due to the lack of labour. On the other hand, maintaining the same amount of labour and working hours will lead to an increased cost. In order for the firms to maintain their profitability, the prices of the product or services will most likely be increased.
This will lead to the reduction of the competitiveness of small and medium firms compared to the large firms. Because large firms can most likely afford the increase of the minimum wage, they might not need to push the prices up to keep their demands. This can be disadvantageous to Hong Kong as a whole if it leads to the closure of the small and medium firms which leaves huge industries as monopolies in the industry. Card (1995) mentioned that the minimum wage has a “ripple effect” in many firms, leading to pay increases for workers initially earning slightly more than the new minimum wage. Because of this, the effects previously mentioned will be amplified even to firms which pay slightly above the new SMW even before the increase.
In the government’s perspective, the increase of the minimum wage policy can help reduce the government expenditure in a country. According to the Social Welfare Department, Hong Kong has a scheme called the Comprehensive Social Security Assistance Scheme to help those who does not have sufficient income to cover their expenses (“Comprehensive social security,” 2013). For example, an able-bodied adult aged under 60 will receive HK$2,070 if he does not have a family. When the government increased the SMW, the income of the working people will increase and the amount of people that would need the government subsidies to cover their living expenses can decrease. This way, the government can spend more expenditures on other aspects such as better education or housing for the poor.
This new legislation will also bring several impacts on the Hong Kong society as a whole. Firstly, it has been mentioned that the increase of the minimum wage rate of Hong Kong will lead to the increased cost of firms and ultimately the consumers. Since most of the goods that can be found locally is manufactured by workers working in a minimum wage, the increase of the SMW will most likely inflate most of the price for most goods. The general increase in the prices level will lead to inflation which brings negative impacts to the lower class part of Hong Kong. According to the Census and Statistics Department of Hong Kong, the inflation rate of Hong Kong was recorded at 4.30 percent in October of 2013 compared to October of 2012 (“Monthly report on,” 2013). The increase of the Statutory Minimum Wage is a mere 7.14% since it was first released at May 1, 2011 while the inflationary pressures are roughly 4% annually. This shows that the increase of the minimum wage rate is insufficient to cope with the inflationary pressures that the workers are experiencing in the society.
On the other hand, the increase of the minimum wage rate had reduced the income inequality even by a very small amount. The Hong Kong government’s economic report at the year 2012 had shown that Hong Kong has a Gini coefficient of 0.537 in the year 2011 for the original household income (“Half-yearly economic report 2012,” 2012). This is quite a high figure as the Central Intelligence Agency (CIA)’s world factbook states that Hong Kong is ranked at the 11th place for the countries with the highest Gini coefficient. Singapore on the other hand, had a much lower Gini coefficient of 0.478 in the year 2012 and is ranked 26th in the world (“The world factbook,” ). These figures shows that Hong Kong is one of the worst countries in terms of income equality whereas the income of the rich greatly outweigh the poor. By increasing the Statutory Minimum Wage rate, the citizens with low incomes will be affected as their income will increase while the citizens with high income are barely affected by this legislations. This will then reduce the wealth gap even just by a very small amount and Hong Kong’s Gini coefficient might drop by a slight amount in the future.
Fajnzylber, Lederman, and Loayza (2002) had concluded in their paper that the increase in income inequality has a significant and robust effect of raising crime rates. According to the paper, when income inequality is high, the differences between the potential gains that could be acquired from doing a crime compared with the opportunity cost of it is high. This will lead to an increase in the crime rates in a particular country where the Gini coefficient is high. By reducing the wealth gap, the government is also helping the society in minimising crime rates as the people in Hong Kong will be less desperate for them into being a criminal. Normally, people resolved into committing crimes when they cannot fulfil their basic needs, therefore the increase of the SMW of Hong Kong will make it more likely for the low income group of people to survive which will ultimately lead to the reduction of crimes.
Objectives of a Social Policy
According to R. Titmuss (1974), the objective of social policy is to meet social needs and promote social integration and discourage alienation. Because the increase of the Statutory Minimum Wage is a form of social policy, it should fulfil the three criteria mentioned by R. Titmuss. This part of the paper will talk about how well the increase in the minimum wage meet the social needs, promoting social integration, and discourage alienation in the Hong Kong society.
Meeting the Social Needs
The social needs of a society are the basic fundamentals that the citizens living in Hong Kong needs. One of the ways to dissect these needs is using Maslow’s hierarchy of needs. At the bottom of the triangle and the very basic fundamental human needs are the physiological needs which includes basic necessities to live such as food, shelter, and air. The social policy released by the government at May 1, 2013 regarding the new Statutory Minimum Wage does affect the physiological welfare of the minimum wage workers at some aspects. By increasing the SMW, the income of a substantial amount of the workers were expected to rise. This will allow them to be able to afford more of the basic products to survive such as food, water, etc. Due to the increase in their incomes and thus their disposable income, the spending powers of these parts of the society will increase and they should have a better standard of living.
However, the paper had mentioned before that inflationary pressures can reduce and dilute the effects of the minimum wage increase. The increase in the labour costs, which is one of the factors of production, can lead to a cost push inflation in which the rising costs are passed on to the consumers. Even though the workers earning the SMW might feel richer, the general price increase may lead to a small or no improvement in the living standards. According to Trading Economics (2013), Hong Kong’s Consumer Price Index (CPI) is reaching its all time high of 116.8 Index Points in September of 2013. This might even lead to a decrease in the living standard of the working poor as most goods and services are becoming more expensive.
Another aspect that is related to the physiological needs of the society is shelter, or the rent of the apartments in the case of Hong Kong. According to Global Property Guide (2013), the property prices of land of Hong Kong had surged 73% which leads to really high rent rates which takes up a huge part of a person’s salary. The introduction of the increase in the minimum wage social policy does nothing to tackle this problem, meaning that the working poor would still need to spend a substantial amount of their salary just to pay for the rent. Even though the Hong Kong Housing Authority is currently attending to this particular need, it is insufficient to fulfil everyone’s physiological need of a decent shelter.
The second level of Maslow’s hierarchy of needs is the safety needs of every individuals. Every working men would want a job that is both secure and consistent. They would not want a job that does not ensure a regular income to cover their expenses. When the minimum wage rate is increased, the firms will try to cut their costs sometimes by making the workers redundant or reducing their working hours. Both of the actions mentioned will lead to an insecure feeling by the workers as they might lose their jobs or have a decreased income. Therefore, the social policy for this case does not improve the social needs of the society, and even bring a sense of insecurity and anxiety. The other 3 aspects of the Maslow’s hierarchy of needs which are the love/belonging, esteem, and self-actualisation, does not apply for this social policy as they are more related with employees with higher income and mostly the white collar workers.
Promoting Social Integration and Discourage Alienation
Lastly, R. Titmuss (1974) mentioned about promoting social integration and discourage alienation. Social integration is a dynamic and principled process where all members participate in dialogue to achieve and maintain peaceful social relations (United Nations Department of Economic and Social Affairs). This focused on both equal rights and secure social welfare. Even though the increase of the SMW of Hong Kong does not have anything to do with equal rights, it can promote a better social welfare in the society. As mentioned, there is a direct correlation between higher income and lower crime rates. Therefore, if the increase in the minimum wage does increase the total income of each or most individuals working at minimum wage rate, there is a high possibility that Hong Kong can promote more social integration. When social integration occurs, alienation are automatically reduced. When the wealth gap are reduced, communities can be more easily formed as the social classes will be more integrated towards each other.
Conclusion and Evaluation
As shown in the paper, the increase of the Statutory Minimum Wage in Hong Kong have led to both positive and negative functions in the society. Even though the aims and objectives of this social policy is favourable and positive, there are many factors which can turn them into negative results. One of the biggest factor is the difference between the inflation level compared with the increase in the wage rates. Right now, Hong Kong have a high CPI of 116.8 which can greatly reduce the effects of the improved minimum wage rates. I believe that the increase of the Statutory Minimum Wage from HK$28 to HK$30 is insufficient and should be further increased to at least HK$32 to counteract the inflation rates.
On the other hand, the Hong Kong government should take actions to control the inflationary pressures which will be created from this increased labour costs. Fiscal policies such as the use of a higher progressive direct tax for the citizens with high income can be used to both control inflation and increase the government revenue for other uses. Moreover, the government should also try to tackle other social problems that are currently a big issue in Hong Kong like the housing problem. This situation is as critical as the increased amount of the working poor and the huge wealth inequality and should be countered immediately. In order for a social policy to be beneficial to the society, R. Titmuss (1974) believed that it should cover all the three aspects, namely the social needs, social integration, and discourage alienation. Therefore, the government should take account of these features and redesign the Statutory Minimum Wage, increasing it to a more substantial amount.
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