Minimum Wage, Minimum Fuss

There will have to be some pretty nifty political footwork later this year or the exercise to fix Hong Kong's minimum wage is going to end in tears all round.

And as all parties will be present at the dance, they will all have to be in step with the music.

First let's celebrate the good news, and for once there is some. The ideological debate about whether it is ever right for a government to fix wages is over. In principle it is never right from a purely economic perspective, but there are other things in life than economic purity. The huge and widening disparity between the richest and poorest in our community is now so great, and the pay for some of those at the bottom so appallingly low, that society as a whole has put the debate behind it. If the best economic forces can do is leave some people in full time work earning little more than $3,000 per month then common humanity requires intervention.

The other piece of good news is the near unanimous horror which greeted legislator Tommy Cheung's suggestion that the rate should be fixed at $20 per hour or less. Even the most hard hearted in the business community scurried to distance themselves from this idea. Tommy had the good grace to apologise and withdraw the proposal. The employers now seem to be coalescing around a figure of $24. This compares with the united stance of the CTU and FTU - the two largest worker organisations - that the lowest they can accept is $33.

Now comes the hard part: how to bridge that gap. The core of the problem is that nobody knows for certain what the consequences will be of setting the rate at either of these numbers or indeed any point in between. The General Chamber of Commerce has forecast some eye popping unemployment numbers. They seem rather on the high side, especially at the lower end of the spectrum. But the unions' claim that any redundancies will be more than offset by increased job opportunities also seems unlikely. Surveys of what employers, especially restaurant owners, think they might do in different scenarios are of limited usefulness because the questions are hypothetical and there are several moving pieces on the chess board at the same time. Rents, for example, are another major factor in determining viability of most businesses. Future rent increases may have to be moderated if other costs are increased by law. For some companies there might be scope for modest price increases to offset the higher wages. Would consumers really begrudge a few extra dollars on the weekly grocery bill if supermarket shelf stackers were paid a little more? Would we all stop eating out if the dim sum basket cost 50 cents or a dollar more? It seems unlikely, but the main point is nobody knows for certain and we will all only know when all the individuals concerned make their own decisions in the light of actual circumstances.

It is important to realise there are two aspects to the debate - how to set the initial figure, and how to revise it subsequently (substantively, not just for inflation). And perhaps within that duality there lies the possibility of compromise.

If we set the initial rate too high, it would be extremely difficult to reduce it later in the event the negative consequences matched or exceeded the pessimists' expectations. On the other hand, if we set the figure too low, the fairness we seek will not have been achieved and may be delayed for years. The employers will shout that it is "too early to tell" and stall a quick increase. It could take a long time to scrape together the political will to overcome their objections.

One possible compromise is to choose a number somewhere between the two sides' positions. But there is also another possible compromise: announce a starting figure of $24 per hour with scheduled increases of $3 per year for three years until the $33 figure is reached, subject to LegCo having the power to veto the increase in any particular year if the consequences indeed turn out to be dire.

Employers will have ample time to adjust their business model to cope. The unions will see a clear target that matches their aspiration. And the community will be able to monitor actual results instead of theoretical ones and make any necessary adjustments.