The Minimum Wage Policy in Hong Kong

Abstract

An across-the-board statutory minimum wage (SMW) will come into effect in Hong Kong on 1 May 2011. We draw on theoretical arguments for and against a SMW policy, examining empirical evidence outside Hong Kong to suggest an agenda for research. The anti-poverty argument for a SMW implies that the SMW rate should significantly exceed the comprehensive social security assistance (CSSA) monthly payment rate of HK$4095. However, the anti-poverty argument is problematic because of the complexity of the poverty problem. The unemployment argument against a SMW has a lower level of consensus today than it did three decades ago because of conflicting empirical results. The theory of a monopsonistic labour market is the leading theoretical explanation for this situation. It is an empirical question if the labour market that hires low-wage workers in Hong Kong is monopsonistic or competitive. The source of monopsony power and the effects of an across-the-board SMW can differ among industries depending on the difference between the industry average wage rates and the SMW. Firms that hire low-wage workers can also adjust differently, depending on their competitiveness in their product markets. Empirical investigations can help improve policy making with informed decision making.