Information Paper for LegCo Panel on Manpower (Meeting on 25.11.96)
Governments views on the Trade Boards Ordinance
Background of the Trade Boards Ordinance
The Trade Boards Ordinance (TBO) was enacted in June 1940 to provide a machinery for fixing minimum wages, determining normal working hours and fixing overtime rates in trades where the wage standards were unreasonably low. It was designed to repeal the then Minimum Wage Ordinance (MWO), which merely provided the power to lay down rates of minimum wages where they seemed to be required. The TBO goes further than the MWO to provide not only the power but also the machinery under which this power will be exercised through the establishment of Trade Boards for any trades or branches of work in a trade, consisting of members representing employers and members representing workers in equal proportions, and appointed members.
2. The MWO was enacted in August 1932 to provide for the fixing of minimum wages in occupations where the wages paid are unreasonably low. This piece of legislation was intended to extend to Hong Kong the UK Governments obligation to follow International Labour Convention (ILC) No. 26 concerning the creation of minimum wage fixing machinery.
3. Since the enactment of the TBO, the Government has never invoked the powers of the Ordinance to establish trade boards for any trade.
Application of ILC No. 26 in UK and Hong Kong
4. Before July 1985, the UK Government used to ratify this Convention and this Convention was therefore also extended to Hong Kong without modification. In July 1985, the UK Government denounced ratification of this Convention. By virtue of this denunciation, Hong Kong is no longer obliged to comply with this Convention.
5. There is currently no minimum wage legislation in the UK. In 1993, the legislation which provided for statutory minimum remuneration for certain workers in accordance with wage orders made by wages councils was repealed by the Trade Union Reform and Employment Rights Act 1993.
Reasons for not invoking the powers of TBO
6. The Government adopts a minimum intervention policy and firmly believes that wages or pay, like prices of goods and services, should be determined entirely by the interaction of supply and demand in the labour market. This will ensure the most optimal and efficient allocation of resources which will yield the highest return for the economy as a whole. In the free market economy of Hong Kong, both employers and employees are free to agree on the level of wages and other conditions of employment. The Government has never invoked its power under the TBO ever since its enactment. This is because it has never been necessary for us to do so, for reasons set out in the following paragraphs.
7. First, while it is true that wages (i.e. labour costs) eased in the past two years, earnings (i.e. income) of the employed persons, which reflect what they actually receive as rewards for their work, continued to increase in real terms. For example, earnings for all sectors taken together rose by 11% in money terms in the second quarter of 1996 over a year earlier, representing an increase of 4% in real terms after discounting inflation. Even in manufacturing, earnings for those in employment managed to increase at a rate higher than the prevailing inflation rate.
8. Second, in line with our minimum intervention philosophy, we do not consider it appropriate for the Government to interfere with the free market by setting a minimum wage for any particular trade. In fact, any move to tamper with market decisions is bound to be counter-productive. If the minimum wage increase is set too low, it will lead to excessive demand over supply and no employers will have the incentive to pay more than the minimum wage regardless of the productivity of the workers. On the other hand, if the minimum wage is set too high, the labour costs may be too high for certain trades to remain competitive or viable. Consequently, they may scale down or close down their local operations. In the end, this will jeopardize the employment opportunities and will not be to the benefit of employees at large.
9. Third, given the efficient flow of information and high mobility of our local workforce, employees will unlikely accept any job which offers unreasonably low wages, and employers will also unlikely be in a position to recruit or retain staff by offering unreasonably low wages generally.
10. Fourth, a minimum wage system may not be effective to guarantee the wage levels of employees at times of economic recession. In order to secure a job, employees may be willing to accept wage rates below the statutory minimum, hence further suppressing wage growth. But if wages were artificially prevented from falling, it would only lead to even more unemployment, thereby unnecessarily prolonging the process of recovery in the economy. Also the job opportunities of the less competent workers would be greatly hampered as employers would probably prefer to employ relatively more capable candidates at the same minimum wage rates.
Review of whether TBO should continue to be retained
11. The Governments philosophy of minimum intervention has served Hong Kong well. It is not be in the interest of Hong Kong to impose a minimum wage on any trades. Given that Hong Kong is no longer obliged to comply with ILC No. 26 on the setting up of a minimum wage determination machinery, that it is undesirable to minimum wages and that it has never been necessary for the Government to invoke its powers to establish Trade Boards, the Government is considering whether to retain the TBO in the laws of Hong Kong.
Labour Department
November 1996
Last Updated on 21 August 1998
