Work, not welfare

Dan Ryan is a director of The Lion Rock Institute, South China Morning Post - Insight A15, 2008.10.21

One of the key elements of Donald Tsang Yam-kuen's recent policy address was his plan to introduce an across-the-board statutory minimum wage in the coming 2008-2009 legislative session. While no doubt guided by the best intentions - if implemented - this policy would be disastrous for Hong Kong. It would lock our most vulnerable members of society out of the workforce, create a pool of persistent long-term unemployed in Hong Kong, and sow the seeds of a destructive welfare culture that has caused such heartbreak in other parts of the world. In short, it would punish the very people it intends to help.

When discussing this issue it is important to push past the emotive language and understand what these laws actually do. Minimum wage laws make it illegal for an employer to offer work to or to continue to employ a person for less than an amount determined by the government. Proponents like to cheerfully state that what this means is that these laws guarantee that anyone employed will not be paid less than the minimum amount. While this, at first glance, sounds appealing - it does not tell the full story.

The flip side is that if the economic value of a person's labour is worth less than the prescribed statutory amount they are by law prohibited from being employed. Minimum wage laws therefore - by definition - create unemployment as they force a particular portion of the population out of the workforce.

To illustrate this point, imagine for a moment that a minimum wage of US$500 per hour were introduced in Hong Kong. The result would be that all those of us whose labour is worth less than US$500 per hour - which probably includes all but a few very highly paid lawyers and bankers - would be legally prohibited from being employed in this city.

The effect is identical for those at the lower end of economic ladder. If the economic value of a person's labour is worth HK$20 an hour but the minimum wage is set at HK$30, then that person would no longer be able to be legally employed in Hong Kong. This policy by its very nature affects those with the least marketable skills, those trying to enter the job market, newly arrived migrants, the disabled, the elderly and other disadvantaged groups.

What happens to all those people currently employed at less than the to-be-established minimum wage? What happens to those whose labour is worth less than the prescribed minimum amount?

In many western countries the answer to these questions unfortunately is that the individual becomes a welfare recipient. The view seems to be that if the economic value of a person's labour is worth less than the minimum wage then they would be better off - and it is somehow more compassionate - for them to simply receive benefits from the government. The tragic fallacy of this thinking is exposed in the violence-ridden communities of aboriginal Australia, the social breakdown amongst the once proud working classes in Britain, and in the fatherless homes of black America where public welfare has caused so much damage.

The truth is that the best thing a person can do is to stay in the workforce even if not very well paid. While one may not earn much to begin with - perhaps just bed and board - as one accumulates skills, experience, and reputation, the economic value of one's labour increases. Many of this city's tycoons famously started off washing dishes for a living. A person's human dignity is far more enhanced by staying employed rather than forced on to welfare.

All human beings have intrinsic worth which is independent of the economic value of their labour. Those of us lucky enough to have been given talents that have a high economic value should be grateful for them. The best thing we can do if we are genuinely concerned about the less well off in society is to donate money or commit time to those individuals and private institutions that - for little or no economic reward - devote their lives to helping the less well off in our society. Arbitrarily drawing a line deciding who should and should not be in the workforce is not the answer.