Saturday, April 17, 2010

Unworkable solution, SCMP, Dan Ryan

South China Morning Post
Voices  |   By Dan Ryan

Unworkable solution

A good rule of thumb in any public debate is to pay close attention to which side resorts to character attacks. It is almost always the case that those that do have the weaker side of the argument.
The discussion regarding the proposed introduction of minimum wage laws in Hong Kong has been a good example of this principle in action.

Opponents of these laws have been accused of being, among other things, selfish, uncaring, the Scrooge class, having a truly ugly face, being liars - and that's just what's been said in public.

Now, such free character assessments are all fine and dandy, but they add nothing to civil discussion of issues in Hong Kong. More importantly, they also fail to address the very legitimate concerns about the negative effect minimum wage laws would have on the most vulnerable in our society.

To many, this seems counter-intuitive. If you care about the vulnerable in our society surely you should be in favour of passing a law saying that they should be paid more, right? If only it were that simple.
We all wish everyone was paid more. Unfortunately, it is impossible to pass a law to decree that people should be paid higher than the market rate for a particular type of labour without forcing them out of work.
For example, I would very much like proponents of minimum wage laws who have graced these pages to be paid more than they currently are. I think they are being exploited at their current wage levels. I want them to be paid more because I care.

Yet, if a law were passed to make it illegal to employ them for less than US$1,000 per hour, then they would not be able to write for any newspaper ever again in Hong Kong. The bleak options they face would either be to go on unemployment benefit or try to get work illegally on the journalistic black market. Who would want that?

The same principle applies for the lowly paid. If the market rate for a particular type of labour is HK$20 but the law requires that no one can be employed for less than HK$30, then a portion of the labour force will necessarily be excluded from paid work.

Tragically, those forced out of employment or onto the black market will tend to be the most vulnerable - the old, the handicapped, the young struggling to enter the workforce, as well as minorities and new immigrants.
Proponents of minimum wage laws tacitly accept this argument because they seem to agree that, if you set it too high, you will cause unemployment.

It is for this reason that not even the most left-wing union is proposing a HK$100 per hour figure. All seem to believe, nevertheless, that they can determine a magical figure for the minimum wage that is above the market rate yet will not cause greater unemployment. But it is impossible to square this circle.

In trying to work out this Goldilocks not too high, not too low figure, they end up engaging in moralistic finger-pointing. Thus, lawmaker Tommy Cheung Yu-yan is roundly condemned for proposing a HK$20 per hour figure but others can suggest a starting point of HK$33 per hour and be held up as the very model of virtue.
But neither is more heartless or generous than the other. Both figures are completely arbitrary, as any figure decided by a panel of experts will also be.

These attempts to centrally plan the price of wages belong to the Brezhnev era. Just as no one really knows what the level of the Hang Seng Index will be next year, or how much property will go up or down, so no one really has any certain idea what wages will do over the course of the year.
It could very well be the case that the market crashes and demand for labour decreases. The market rate for many workers may then unfortunately drop below HK$20 per hour.

Equally, the market could - let us hope - boom, meaning that no one in the whole of Hong Kong would be willing to work for less than HK$50 per hour.

The correct and more flexible way to make adjustments for these fluctuations and for individual circumstances is through private negotiations between employers and employees.

Where demand for labour increases, employers are forced to pay more - otherwise their staff will just move on to other employers who will pay more. If demand for labour drops, then downward adjustments on wages must necessarily be made.

All minimum wage laws do is either force people out of work if the arbitrary figure they propose is above the market rate, or end up being pointless if the figure is below the market rate.

Can someone please remind me why those who oppose minimum wage laws are so terrible, again?

Dan Ryan is a director of the Lion Rock Institute, Hong Kong's leading free-market think tank

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