LC Paper No.CB(2) 456/98-99(01)

18 September 1998

Hon Lee Kai-ming
Chairman
Panel on Manpower
Legislative Council
c/o Mrs Sharon Tong
Legislative Council Building
8 Jackson Road, Hong Kong

Dear

Thank you for inviting the Employers' Federation of Hong Kong to express views on the research paper of the Hong Kong Social Security Society proposing establishment of minimum wages in Hong Kong.

The Employers' Federation is fully committed to the concept of "responsible employer", and keen to promote a harmonious and productive employment environment for the benefits of both employers and employees. The establishment of a minimum wages system, however, is moving towards the opposite direction. We therefore strongly object to the proposal.

We believe wages should be determined by the free market, which has its own way of balancing the demand and supply of labours. The market is too diverse and elastic to set a right level of minimum wages for different job categories in different industries. If the minimum wage is set lower than the market rate, it will easily turn to be the maximum wages of the workers, which is not beneficial to employees. On the contrary, employers will be forced to recruit fewer employees or cut employee benefits so as to keep the operating cost at a reasonable level. In all, any artificial attempts will only distort the optimal allocation of resources and end up having the opposite effect to that intended. We therefore can hardly understand the argument 8.5 of the proposal claiming that the system can "ensure the proper use and safeguarding of human resources". It should be employees' productivity, competence, ability and hard work determining their remuneration.

Although many countries have adopted the minimum wages system as quoted in paragraph 7.2 of the proposal, we should not lose sight that a free market mechanism is the most important success factor and competitive edge for Hong Kong. Not all of our major competitors in the Asia-Pacific region such as Malaysia, Singapore and Korea have adopted the minimum wages system. Most of the countries which have adopted the system have been having higher unemployment rates than Hong Kong, although the system is not the only contributing factor. Moreover, in these countries, the subject of minimum wages always becomes a political agenda, which is counter-productive.

The report once and again suggested to adopt the Singaporean model. However, Singapore does not impose any minimum wage. The main objective of its National Wages Council is only to formulate broad guidelines on wage adjustments in line with Singapore's long-term economic and social development. The exact salary to be offered is subject to negotiation and mutual agreement between the employer and the employee.

In paragraph 8 of the proposal which listed out the merits in support of the introduction of such a system in Hong Kong, four (8.1 to 8.4) out of the six arguments were from the perspective of social welfare. Although we recognise that employers should have a social responsibility role in a community, we cannot agree to using social security as the prime consideration for determining wages. Furthermore, evidences in USA and other countries show that the minimum wages system is ineffective to alleviate the problem of poverty. The contraction of labour demand due to the rising labour costs will lead to direct or indirect competition between unskilled and semi-skilled workers. Eventually the workers with low skills will be mostly affected, especially those normal wages less than or close to the legally established minimum wages.

According to the statistics quoted in the Social Security Society's report, 280,000 full-time employees are receiving a wage lower than the recommended rate. The report presumed that all these 280,000 employees will be benefited from having a Minimum Wage. However, it is necessary to analyze who are these people. Even without the necessary statistics, it could well be expected that most of them, if not all, are less competitive in the labour market. With the minimum wages imposed, instead of guaranteeing minimum wage for them, they may be pushed out totally from the employment market. Moreover, the different definitions of wages in the minimum wages system, the Employment Ordinance and the forthcoming Mandatory Provident Fund Scheme will be confusing.

In the current economic situation, our efforts and resources should best be spent on restoring the confidence of domestic and foreign investors in investing in Hong Kong. Only by doing so, the employment opportunities and employees' benefits will continue to improve. Any hasty interference and legislation will only pose hurdles on the economic recovery and further hammer Hong Kong's competitiveness. In the past, Hong Kong surpassed different economic downturns partly because our free market approach provides a favourable environment for businesses thereby creating job opportunities. Imposing a minimum wage may deter the initiation, which is harmful to the recovery of the economy.

We should also bear in mind that a great number of Hong Kong's businesses are small enterprises which are operating at a very low profit margin. Imposing a minimum wages on them will only force these businesses to either neglect the law (or find ways to get around it), close the business or reduce the number of employees. Neither of these results are the intention of the Social Security Society or the labour organisations.

For the benefit of the Hong Kong community as a whole, we suggest that employers and employees should work hand-in-hand for their mutual benefits. Any one-sided protectionism should not be allowed to flourish. We therefore do not support the Hong Kong Social Security Society's proposal of establishing minimum wages system in Hong Kong.

Yours sincerely,

Norman K T Yuen
Chairman
Employee Relations & Legislation Issues Committee

c.c.	Mr. Joseph Wong JP. Secretary for Education and Manpower Miss Jacqueline Willis JP, Commissioner for Labour Mr Ross Sayers, EFHK Chairman Dr Kim Mak, Labour Advisory Board Representative, EFHK