Hong Kong’s new formula for adjusting the minimum wage will not affect company bottom lines because employers can afford it, the labour minister has said in defence of the mechanism.
Secretary for Labour and Welfare Chris Sun Yuk-han said on Saturday that the mechanism would not affect the city’s competitiveness because of the “composition of the formula”.
“It has taken into account, on the one hand, the need to protect those earning the minimum wage … and also ensures, at the same time, that the business sector finds it affordable and acceptable,” he told a radio programme.
“It has already struck a balance between different needs and demands. So, we believe it shouldn’t affect the overall competitiveness of our business sector.”
Under the mechanism, the formula for calculating the wage level each year will include factors such as the consumer price index (A), gross domestic product growth and average GDP growth over the past 10 years.
The index reflects changes in the cost of consumer goods and services generally bought by households. Index (A) relates to about 50 per cent of households, which are in the relatively low expenditure range.
The annual adjustment rate will be the consumer price index (A) plus 20 per cent of the difference between the latest real GDP growth and the trend growth in the past decade, and subject to a cap of 1 percentage point.
If the formula produces a negative number, the minimum wage will be frozen.
The new mechanism, which bars any cut to the rate, will take effect next year following the approval of Hong Kong’s key decision-making body Executive Council.
Labour minister Sun reiterated that the new mechanism recommended by the Minimum Wage Commission had weighed the interests of bosses and workers, adding that at present only about 0.6 per cent of the local workforce, around 17,000 workers, were receiving the basic rate.
The business sector had expressed concerns that the move might increase their financial burden, especially in bad economic times when workers’ wages could not be adjusted downwards.
“There may be a ripple effect, but it won’t have a big impact on the business sector as the affected vulnerable group only accounts for a small number. We hope that the new formula can offer more protection for them in terms of their basic salary,” he said.
“The business sector can afford to provide a mechanism that excludes any pay cut to the rate … Hong Kong is a wealthy society,” Sun added.
“We should provide more help for this group of people at the lowest rung of the ladder to safeguard their basic livelihoods in bad times while allowing them to share the economic fruits in good times.”
The changes made to the review are the first in 13 years since Hong Kong introduced the statutory minimum wage in 2011 to provide protection for low-paid workers.
The new mechanism is expected to take effect next year, when the rate is due for review. The review will become an annual exercise in 2026 and be assessed five or 10 years after implementation.
Sun pointed out that the cap of 1 percentage point and the 20 per cent of the GDP difference had taken into account the employers’ contribution to the economy which ensured the rate would not be unaffordable to bosses.
On May 1 last year, the minimum wage was raised to HK$40 (US$5) an hour, an increase of about 6.7 per cent.