Hong Kong’s minimum wage increase should be stepping stone in fight against poverty

Hong Kong’s new minimum wage formula is a win-win for employers and employees and shows the city is finally taking action to support low-income workers
Contractors and subcontractors must also be held accountable to protect the rights of outsourced workers and prevent accidents on the job

Paul Yip

Published: 9:30am, 8 May 2024

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To set the minimum wage, the Hong Kong government is adopting a new mechanism based on a formula which uses the latest consumer price index (A), as well as 20 per cent of the difference between current gross domestic product growth and average GDP growth over the past 10 years, subject to a cap of 1 percentage point.

The new formula has several advantages. It does away with the need to spend resources on collecting data or expend time on debates in the Minimum Wage Commission. The formula provides an objective and efficient way to set the minimum wage. It also strikes a balance so low-income earners can share the benefits of economic growth and have a safety net during economic downturns.

The minimum wage was introduced in 2011 with the initial rate set at HK$28 (US$3.58) an hour. Since May last year, it has been HK$40. There has been concern about what impact the new formula will have on business operating costs.

Based on my calculation, if the formula had been adopted in 2011, the minimum wage would be about HK$41.7 an hour in 2024, only slightly higher than the current one. The minimum wage that comes into effect using the new formula will be a bit higher than what it would have been had the wage been calculated using the new formula from 2011 onwards, as it will be annually adjusted.

I have yet to learn of any convincing argument for why the minimum wage should only be reviewed every two years aside from the administrative cost and time needed to collect the data. McDonald’s, for example, adjusts its prices more frequently.

When it was released in previous years, the Hong Kong Poverty Situation Report confirmed the continual worsening of the city’s poverty rate. The low minimum wage has been partly to blame. The monthly median income of Hong Kong earners increased from HK$11,300 in 2011 to HK$20,000 in 2023. That’s an accumulated increase of 77 per cent. However, minimum wage earners only saw an increase of 43 per cent in that period.

Also, those who earn the minimum wage are more vulnerable and less able to negotiate better pay despite arduously serving the community in fundamental ways, such as cleaning MTR stations and other public facilities. These are the people who do essential work to keep the environment clean and our neighbourhoods safe.

The government should be commended for trying a new approach to setting the minimum wage. In spite of concern from the business community, the government was able to reach a consensus and come up with a solution. The new approach to the minimum wage should be seen as a win for everyone.

First, the new formula has gained support from Hong Kong’s grass-roots communities – people who are struggling every day to make end’s meet. Hopefully, the new minimum wage formula can create a ripple effect that will improve the wages of low-income workers.

Second, the formula also shows that employers and employees can find some common ground with the aim of improving relations in the workplace. Happy employees are good for business.

Third, this is an opportunity to tell a good story about Hong Kong, one that shows that we as a city are making genuine progress in looking after the well-being of low-income workers.

Lastly, this new approach shows the government has at least done something right and met one of its promises, which has a meaningful impact on the community.

An employee disinfects a fare machine at the Mei Foo MTR station concourse on January 26, 2022. Photo: Sam Tsang

To further improve the well-being of low-income earners, policymakers should also review outsourced work arrangements. The government ought to use a low-income subsidy to support outsourced workers who live in poverty. They simply don’t have the ability to demand better wages.

Why is it that the government cannot employ these workers directly? The additional cost is minimal. Moreover, it is not just workers but also their families who would benefit. Workers should be able to earn a living wage rather than just relying on support from the government. Creating jobs and paying workers a decent wage are the most effective and sustainable ways to lift people out of poverty.

Occupational safety has also become a source of concern and discontent lately. Employers who have been awarded government contracts often outsource work to subcontractors. The workers employed in this capacity have few rights and protections, in addition to earning low salaries. The government must hold main contractors accountable for their subcontractors.

Cleaning staff work in Wan Chai under a “heat stress at work” warning on August 3, 2023. Photo: May Tse

The issue here is responsible governance and the principle that no one should walk away from their responsibilities. By holding contractors accountable, we can normalise better practices, such as protecting the interests of companies and the well-being of their workers at the same time.

This requires a structural and systematic change to stamp out the negligence that allows for unsafe workplaces and the exploitation of outsourced workers. Without such a change, workplace accidents will keep occurring.

Ending poverty by 2030 is the first of the 17 Sustainable Development Goals adopted by the United Nations in 2015. We clearly still have a long way to go. We can’t expect to see progress without effective governance and a collective commitment to the cause. We must stand up for change. While we are delighted to see the minimum wage increase, we must keep going.

Paul Yip is a chair professor (population health) at the Department of Social Work and Social Administration at the University of Hong Kong