Hong Kong business sector, lawmakers hail minimum wage formula, but economist warns over risks of potential price spiral

The new formula for minimum wage levels would also consider factors such as consumer price index (A), current gross domestic product growth and average GDP growth in the past 10 years, an insider said.

The consumer price index reflects changes in the cost of goods and services generally bought by households. Index (A) relates to about 50 per cent of households in the city, which are in the relatively low expenditure range.

The insider said the wage level would also be reviewed annually, rather than every two years as in the past.

Hong Kong minimum wage to rise HK$1.80 to HK$41.80 per hour

Simon Wong Ka-wo, ­president of the Hong Kong Federation of Restaurants and Related Trades, expressed concerns over the impact brought by the adjusted minimum wage given that the catering sector had been hard hit by residents flocking across the border during public holidays.

“We hope the government can speed up allowing more workers to be imported. An increase in the labour supply can also help stabilise wages,” he said.

But Wong added he had no problem with an annual review as now it would be under the new formula linked to inflation and GDP.

“It is objective data and both the employers and workers’ sides do not need to argue every time the minimum wage level is set,” he said.

Legislator Frankie Ngan Man-yu, labour affairs spokesman at the Democratic Alliance for the Betterment and Progress of Hong Kong, also welcomed pegging wages with inflation and GDP growth, saying: “Taking reference of objective data is much better and effective.

“Instead of employers and employees arguing for a minimum wage level every year, setting the level based on objective data can also make the adjustment of minimum wage more responsive to market changes.”

He only expressed reservations about plans to disallow pay cuts.

“It will restrict employers’ ability to respond to economic downturns as they are not able to adjust staff costs accordingly to keep the company afloat. Staff receiving minimum wages may not be able to seek to stay in jobs,” he said.

“The result could be more people being out of a job.”

Ngan proposed allowing the Executive Council the final say in adjusting the minimum wage level based on the prevailing economic situation.

Hong Kong unions call for safeguards against sacking seriously ill helpers

But Dr Lee Shu-kam, head of Shue Yan University’s department of economics and finance, warned the measure could lead to possible spiralling wages and inflation.

“Prices of services and products will inevitably increase as a result of higher labour costs resulting from the annual adjustment of the minimum wage,” Lee said.

“When things get more expensive, thus jacking up inflation, the minimum wage will also go up accordingly as both are pegged under the new formula.”

He said small and medium-sized enterprises could bear the brunt of the rising costs.

“With higher inflation, it could trigger a rise in interest rates. That could dampen investment and thus adversely impact economic growth. The whole society will suffer,” the academic warned.

“It will also be dangerous if downward adjustments of the minimum wage level are made impossible by administrative inference.”

Hong Kong economy set for fifth straight quarter of ‘moderate’ growth: Paul Chan

Legislator Dennis Leung Tsz-wing, of the Federation of Trade Unions, however argued that a “no pay cut” formula would safeguard the interests of workers who were receiving the minimum wage.

Hong Kong introduced the statutory minimum wage in 2011 to provide protection for low-paid employees and set the amount at HK$28 an hour. The rate was increased every two years and hit HK$37.50 in 2019.

But the amount was frozen in 2021 for the first time. Authorities blamed an economy battered by the effects of Covid-19 for the change in policy. In 2023, it was adjusted to HK$40 an hour.

The minimum wage level has been a constant source of contention whenever it is reviewed.

Opponents, mainly the business sector, argued that increased labour costs would overwhelm small businesses financially.

Unions and advocates of the minimum wage, however, argued paying workers more could stimulate the economy by increasing spending power.