LC Paper No. CB(2) 480/98-99(01)

(Letterhead of the Chinese General Chamber of Commerce)

Ref. :(B)98-10-4
By Fax and by Post

17 October 1998
LegCo Panel on Manpower

Dear Panel Members,

Upon receipt of your copy of the research paper entitled (Proposal on Minimum Wage in Hong Kong) published by the Hong Kong Social Security Society, the Chinese General Chamber of Commerce ("the Chamber") set up an ad hoc group to look into the proposal. The views of the ad hoc group are as follows:

1.Free Market Economy

--According to the principle of a free market economy, the level of wages should be determined by supply and demand in the labour market. Any change in either side will entail wage adjustments which in turn will restore the supply-demand equilibrium. The Chamber is of the view that setting a minimum wage will hamper the inherent adjustment of a free market. The minimum wage will be adjusted upwards when the economy is booming. Yet, in a period of economic downturn, the minimum wage may not be readily responsive to market changes and may not be adjusted downwards accordingly, resulting in a lack of flexibility in market operations.

--given the disparity in the wages for a vast range of trades and industries and even for the same occupation in different districts, it is in practice difficult to set a level of minimum wage suitable for all trades and industries. However, through the regulation of the free market, each trade and industry has established its own non-statutory minimum wage which serves as a guideline for employers and employees.

--It is questionable that the basic cost of living sufficient for supporting a worker and his dependent family members should be adopted as a yardstick for calculating the level of minimum wage as shown in the research paper. Should the level of wage set by the free market mechanism be too low, it is up to the employee to decide whether he will accept the wage or apply for social security assistance. If the wages are not sufficient for him to support himself and his family, it should be a responsibility on the part of the government rather than the employer to offer him protection and assistance in the form of social welfare service.

--It was pointed out in the research paper that over 80 countries worldwide have established systems of minimum wages, showing that a system of minimum wage will neither affect the free market economy nor hinder the economic growth. However, the other three Asian Tigers, namely, South Korea, Taiwan and Singapore, have not adopted any minimum wage systems. For the countries listed in the research paper, their history provides a backdrop for their adoption of systems of minimum wage. Political considerations and racial problems were among the reasons. Moreover, the level of economic development among these countries differed significantly. So did their levels of minimum wage and the implementation of policies on minimum wage. Therefore, they should not be treated alike.

2.The Economy of Hong Kong

--In the wake of an economic downturn and a diminishing purchasing power, many industries have experienced a significant drop in their turnover with a worsening business environment. The adoption of a system of minimum wage at this time will definitely bring added burden to employers, pushing them to the verge of winding up their businesses.

--In the light of an economic restructuring, a number of industries are on the wane and wages are adjusted downwards accordingly. The wages for some categories of jobs, which are regarded as relatively high, will also be scaled down in the wake of the sluggish economic situation. The adoption of minimum wages may not necessarily do any good to the structural change of industries and wage adjustments of certain jobs. If wages are not adjusted through market forces, Hong Kong's competitiveness in the international market will be affected. Moreover, some industries will speed up the relocation of their base to Mainland China, in order to reduce wage costs which in turn will aggravate the unemployment problem.

--A minimum wage system may not serve the genuine interests of employees:--

  1. In order to reduce operating costs, employers may have to cut down the number of permanent posts in favour of employing more hourly-rated staff, ultimately jeopardizing the interests of employees.

  2. Persons who are not the breadwinners of their families may choose to take up part-time jobs in the neighbourhood. As no travelling expenses are incurred, these people are mostly willing to accept lower pay. A minimum wage will affect these people's employment opportunity.

  3. During a period of economic recession and sluggish business, employees can hold down their jobs by accepting lower pay. Otherwise, losing a job may deal a great blow to their confidence.

  4. Should a minimum wage be imposed, employers will be encouraged to hire experienced workers, hence creating hurdles for people wishing to enter the trade.
3.Mechanism to balance the interests of employers and employees

The Chamber considers that a minimum wage may on the contrary become a yardstick for setting a maximum wage. Fixing a minimum wage will not help balance the interests of employers, employees and even the whole economy. It should not be taken as a means to protect employees. The Chamber is of the view that an effective mechanism should be put in place to balance the interests of employers and employees and that the adequacy of protection provided by the existing system should be reviewed.

The Chinese General Chamber of Commerce