Minimum Wage Gives No Hope To The Needy

by Hannah Berdal
Hannah Berdal is in her third year at the University of Western Australia, studying a combined degree in Law and Commerce with an Economics major. Hannah is currently involved in the Students in Free Enterprise society at her university as an executive member and was recently an intern at the Lion Rock Institute.

Hong Kong’s minimum wage policy has a lot to answer for. As a scheme that prides itself as a champion of the labour market, it seems hard to believe that our most vulnerable workers are being put at the greatest risk of joblessness at a time when employment should be fiercely defended.

For advocates of the minimum wage, the outcomes seem flawless. Many claim that increases to the standard of living for the poorest of the poor and the protection of workers’ rights are the fundamental reasons for enacting the scheme — a seemingly perfect example of government regulation, one would think.

Unfortunately, history shows us that minimum wage doesn’t work. In fact, the end product from such legislation leaves our most unskilled, ill equipped workers out of work and a puts significant strain on Hong Kong’s small and medium sized businesses as they struggle to keep workers amidst the pressures of increasing labour costs and a gloomy economy.

The basis for this reasoning is surprisingly clear. When any business is coerced into artificially raising costs regardless of market conditions, someone pays the price. For our city’s least skilled workers, including our students and immigrants, this means unemployment. Instead of ‘allowing’ workers to gain higher wages for the same level of technical skill or training, they are systematically priced out of the labour market pool. As the cost of labour rises, businesses find it increasingly difficult to retain workers and begin to downsize their workforce to save money (the first to go is most commonly those with low incomes as the replacement market is more fluid). This gives our lowest income earning workers little hope — leaving them with the crippling prospects of unemployment and a harder time seeking work in the future.

For a society that prides itself on being built by entrepreneurs and those with small, often humble beginnings, minimum wage legislation is unfortunately cutting off that initial starting point for many of our least skilled workers.

As Hong Kong faces a widening wealth gap between the rich and poor, having minimum wage in place actually prevents those at the bottom of the labour market from gaining more experience through employment and promotion (thereby increasing their incomes), due to this artificial mispricing distorting the market; an unsightly reality for policy makers. Instead, there is a greater chance for workers to miss out on promotion as their wages already reflect positions with more responsibility, and many non-income benefits become sneakily priced into the new wages (often removing these perks altogether). The wage laws also increase more illegal ‘off the books’ employment, hence more illegal immigration, leading many workers down a road of hidden exploitation for the sake of employment. For this supposed ‘safety net’ of society, the hidden dangers of this policy leave more of our at-risk members of society exposed and essentially discriminates against people with a low skill set.

Without the wage laws, low skilled workers were provided with ample opportunity to increase their experiences, training and skills in order to better themselves for the future. These include the classic example of low to no paying internships as well as those, such as mothers, that are returning to the workforce. Wages need to reflect productivity, and for groups such as these that are in most need of that ‘first chance’ for experience and development, it is these starting jobs that are being robbed from them that give them their best bet of future prosperity.

It is in this current economic climate that we should be encouraging employment, not rendering it impossible for many businesses through the artificial increasing of wages. Minimum wage is unfortunately a policy that creates the exact consequences it intended to alleviate.

About Editor

Editor of Capitalism.HK

Posted on March 8, 2012, in Berdal and tagged , . Bookmark the permalink. 1 Comment.

  1. Would be great if more people can understand the issue the way you do. Keep up the good work.

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