Case study of Statutory Minimum Wage (SMW): policy change in Hong Kong

Introduction

Poverty and income inequality is one of the most concerned global issues in the world. In 1995, numbers of state leader stated to “support fair globalization and resolve to make the goals of full and productive employment and decent work for all” on the commitments of the World Summit on Social Development. (ILO, 2009, P.2) International Labor Organization (ILO) further claimed that productive employment and decent work are critical elements to achieve a fair globalization and poverty reduction. (ILO, 2016)

ILO (2009) declared one of the foremost objective of social justice for a fair globalization is to enhance social security and labor protection. It included policies in regard to wages and earnings, hours and other conditions of work, designed to ensure a just share of the fruits of progress to all and a minimum living wage to all employed and in need of such protection for all women and men.

Although Hong Kong is one of the most developed economies in the world, there are many low-paid jobs which far away from the objective of ILO. There are a group of grass-roots workers who have been deprived by their employers. According to the Hong Kong Confederation of Trade Unions’ survey (2003), the hourly salary of McDonald’s staff in Hong Kong is around fifteen Hong Kong dollars in 1998–2003. It totally far from the idea of decent work. The wages level is even getting worse and worse since the 1997 Asian financial crisis. (Lee, 2010) According to the survey of Oxfam (2013), more than half of poor population were employed. A large number of working poor arouse the public concern of low-paid job in Hong Kong.

As most of the developed countries already have Statutory Minimum Wage to protect the most unskilled worker. Not only United States, France, United Kingdom, but also some developed Asian country — China, Taiwan, Japan, Korea also have related regulation. Under this situation, a great social pressure on the government to legislate minimum wage protection for workers. (Lee, 2010) Finally, the minimum wage ordinance (Cap. 608) was enacted and came into effect after a lengthy discussion on society and legislative council in July 2010 and on 1st may 2011 respectively. It helps to maintain a balance between the objectives of prevent excessively low wages and minimizing the loss of jobs. (Minimum wage commission, 2016)

The introduction of Statutory Minimum Wage is very important and surprising in Hong Kong. Thus, this article is going to study the detailed policy-making process of Statutory Minimum Wage. It helps to provide a huge information on policy change in Hong Kong.

Framework for analysis

There are a large number of theories about the policy-making process, such as the stage model, Easton’s the system model, Kingdon’s Streams metaphor, Group theory, elite model, structural pluralism and so on. As many of them only focus on particular actors or one individual stage of the process, stage model provides a full picture of the policy-making process. Therefore, in this study, we will adopt the stage model to examine the policy-making process of Statutory Minimum Wage (SMW) in Hong Kong.

In the stage model, policy making is assumed to proceed in stages one by one, from agenda setting to policy formulation, policy adoption, policy implementation and then to evaluation. Policies move from one stage to another, starting at the agenda setting and ending at the end. (Birkland, 2005) In the first stage, policy agenda stage, the problem is getting the government to concern. Then, the next stage, policy formulation stage, some solution is proposed to deal with the problem. The third stage, policy adoption stage, a particular proposal is getting the government to accept. Then, the policy implementation stage, the application of the policy to the problem. Finally, policy evaluation stage, is to evaluate the impact of the implemented policy. After the evaluation stage, the policy process will back to the first stage as some problem may be caused during the implementation of policy. (Anderson, Brady, and Bullock, 1978)

Many of critics pointed out that a policy process may not always a linear process. They also argued that evaluation happens all the time as a policy is being implemented. However, stage model still provides a clear analytical framework of the policy-making process. It helps us to understand how all the pieces of policy process fit together in the whole policy-making process. (Birkland, 2005)

Policy agenda

Hong Kong government always hold the ideology of positive non-intervention. The laissez-faire philosophy is dominant in the government. (Wong, 2012) It makes Hong Kong seems never to apply Statutory Minimum Wage (SMW).

According to Kingdon’s agenda setting model, the issue gains agenda status when Problem stream, Proposal stream and Politics stream come together. Problem stream refers to the social problem. Proposal stream refers to feasible, the reasonable solution to the problem. Politics stream refers to the political climate or mood. (Birkland, 2005)

Since the early 1990s, the economic openness of China-made textile and manufacturing industry have increasingly moved to mainland China. It made low skilled jobs have been disappearing in Hong Kong. It profoundly increase the unemployed rate of low-skilled worker and widened the wage gap. Unfortunately, The Asian financial crisis led to economic downtown, it made the problem more severe. Massive numbers of low paid workers arouse the serious problem of the working poor. Those workers just cannot earn a salary that is adequate to support basic living needs for themselves and their family. The wage level much lower than the exception of society and international standard of decent work. (ILO, 2016) The Gini coefficient which uses to measure of income disparity is always at a very high level. (HKSAR, 2012) The problem stream raised.

In 2001, the media reported an old outsourced public toilet cleaner who only had HK$7 per hour, worked 14 hours per day and had no paid leave. He also lived in the toilet as his salary cannot afford to rent any accommodation. (Appledaily, 2010) The story made a huge impact on society. Thus, the legislative council passed a motion to protect outsourced government workers and to urge the government to legislate minimum wage and maximum working hours. (Lee, 2010; Wong, 2014) The political climate was urging the government to deal with those problems. Problem stream and politics stream met in that moment finally. Thus, the policy window opend.

Policy formulation

After the Policy Agenda stage, the process of policy-making go to policy formulation stage. Acceptable solution for dealing with a public problem will be developed in this stage. (Anderson, Brady, and Bullock, 1978)

In 0ctober 2004, the poverty and working poor issue was placed into the agenda of the Labour Advisory Board, a consultative body under the Labour Department, to respond on the issue. Unsurprisingly, Hong Kong government only launched a voluntary wage protection movement — “Wage protection movement” (WPM) which limited to workers in cleaning and guarding services with notoriously low wages, instead of minimum wage. The government stated the views of statutory minimum wage and standard working hours remain diverse. The effectiveness of the WPM will conduct a comprehensive review after two years implementation. (Policy address, 2006)

Certainly, social activists and pro-grassroots party did not satisfy with the WPM. Thus, the alliance for minimum wage was set up which included various civil society organizations, labour unions, social service NGOs, university student unions, and academics. (Lee, 2010) The alliance continuously advocated the legislation of Minimum Wage.

After two years implementation of WPM, there are only 1,100 employers signed up for the movement, and only 52% of workers in the two relevant services reached the suggested wage level. (Wong, 2014)The failure of the WPM pushed the government started to work for a statutory minimum wage for all employees in 2008. A provisional minimum wage commission was established for preparation of Statutory Minimum Wage, with a total of 13 members, including a chairperson and three members each from the government, labour, business and academic sectors. (Wong, 2014) It showed that statutory minimum wage as a solution which accepted by the government.

Policy adoption

After the accepted solution is formulated, the proposed solution will be legitimized or authorized. (Anderson, Brady, and Bullock, 1978)

The minimum wage bill was introduced in the legislative council in 2009. During the legislation process, one of the most striking points is that Liberal Party lawmaker Tommy Cheung Yu-yan suggested that the first statutory minimum rate should be HK$20. (Cagape, 2010) A large group of citizen held a march to reject his suggestion. After debating within society, the government set up the first rate of SMW to HK$28/hour in 2010. Also, there also a lot of bill amendments were proposed, such as domestic helpers include in SMW. The bill with the endorsement of the legislative council after two readings will become the established SMW legislation. Finally, the minimum wage bill passed in Jan 2011 and finally came into force on 1st may 2011. (Wong, 2014; Lee, 2010) As there are too many conflicts on goals and problem, the political model of policy adoption is formed. The first SMW rate is the result of political compromise.

The SMW legislation arranged with the employment ordinance for definition of wages, allowable deductions, wage periods, employees’ statutory entitlement, and offence and penalty provisions. However, domestic helpers and student interns are excluded from the SMW policy. And disabilities must conduct productivity assessment for inclusion. (Minimum Wage Commission, 2012)

Policy implementation

After policy is adopted, the policy is going to implement . The legitimized policy will apply by the government’s administrative machinery to solve the social problem. (Anderson, Brady, and Bullock, 1978)

Labour Department acts as a primarily responsible department to implement SMW. Promotion, propaganda and education are the necessary work for a good policy implementation. Labour Department also held some SMW briefing sessions for employers and employees. Besides, they made some simple guideline for different business, such as Real Estate Agency, Logistics, Property Management, Security Services and Cleaning Services, Hotel and Tourism, Catering and Retail. (Labour department, 2015) Other than guideline, video, outdoor banner, newspaper advertisement, and leaflet mailing were also used for promotion. (Labour Department, 2011)

Other than promotion, Labour Department is also responsible for law enforcement. They have to conduct routine checks and targeted enforcement campaigns, covering various important sectors. Moreover, they also interviewed employees for checking employers’ compliance with the Minimum Wage Ordinance. (HKGOV, 2015) As SMW was a new law in Hong Kong, Labour Department also provide counseling and mediation services for both employers and employees to reduce their conflict.

In order to reduce the side-effect to employees, Labour Department also strengthen employment support for those job-seekers, for example, Youth Employment and Training Programme (YETP), Employment programme for the middle-aged and Work Orientation and Placement Scheme (WOPS).

According to the minimum wage commission’s chairperson JAT sew tong, the initial SMW has improved the income of low-paid employees apparently. The implementation of SMW has been by and large smooth. (Minimum Wage Commission, 2012) Actually, false self-employment, unpaid lunch time, unpaid overtime, additional working time, cutting double pay and company benefits were highly increased during the implementation stage. However, SMW does not have any regulation on those issue.

Policy evaluation

After the Policy implementation stage, the process of policy-making goes to policy evaluation stage. According to stage model, this stage is the last stage. In this stage, the government will determine whether the policy was effective, however government may not usually do it. (Anderson, Brady, and Bullock, 1978)

Minimum Wage Commission is the main department for evaluating SMW. The commission examines how the SMW affect the corporate profits, economic situation, the labor market, commodity price, specific sub-group employment rate and their hourly salary. The outcome evaluation and impact evaluation is conducted. The impact on low-paid worker and the overall social, economic situation will be evaluated.

The most important that Minimum Wage Commission will evaluate the SMW rate every two years. The Minimum Wage Commission considered the four factors to decide the SMW rate : the basket of indicators, views of stakeholders and interested parties, other relevant considerations and Impact assessment in reviewing the statutory minimum wage (SMW) rate. Those factor including socio-economic and employment conditions for assessing the impact of the initial SMW rate, Assessment of the potential effects of the recommended SMW rate, including the impact on employees, businesses, inflation and unemployment rate and the opinion of stakeholders, interested parties and various sectors of society. (Minimum Wage Commission, 2012) The SMW rate adjusted to HK$30 in 2013 and HK$32.5 in 2015 respectively.

Moreover, the census and statistic department helps to evaluate by providing primary data. Department continuously enhanced the relevant statistical surveys and conducted a new annual survey, which collects the Annual Earnings and Hours Survey and the Annual Survey of Economic Activities, to help determine the initial SMW rate and its subsequent revisions. (Tan and Ko, 2010; Minimum Wage Commission, 2012)

In the case of SMW, it showed that policy-making process is not a linear process. The process went back and forward in the first two stage, policy agenda stage and policy formulation stage. Also, the evaluation of Wage Protection Movement is an important part of the policy process of SMW obviously. It showed that stage model is not a perfect model to investigate policy-making process. However, it gives us a whole clear picture how is the process of policy-making.

Policy change

The initial SMW has improved the income of low-paid employees obviously. And the extremely low-paid job disappeared. The implementation of SMW has been generally smooth. (Minimum Wage Commission, 2012) However, the Minimum Wage Commission have not evaluate the whole policy, but just take little adjust on SMW rate. As Gini coefficient is still at the very high level and some new problem occur, such as the long working hour, relative low SMW rate. Therefore, there was some suggestion for the policy improvement.

Firstly, the Minimum Wage Commission should have more balanced members. The commission have strong power to influence the SWM rate, however, all members are appointed by the chief executive. Wong (2014) stated that it is evident that if the government sided with the business sector, the labour side would be in a difficult position. As the commission was charged with the all-important issue of suggesting the level of SMW, the commission should add various sector members to this committee. SMW is not only an economic issue, but also about social justice. therefore, political sector and social service sector should join the committee. It helps the social opinion go into the commission more easily.

After the implementation of SMW, more low-paid job has unpaid lunch time, unpaid overtime. According to Wong and Ye’s study (2014), the working hours of those low-skilled worker is highly increased. Long working hours is the key factor for the growth of monthly income. However, it reduced their time for social life and family life. In a long term, some family and physical problem may occur. Therefore, the calculating of working and paid rest days should reform. All working hour including lunch time, overtime, standby time should include in the calculation of minimum wage. This is a difficult task as it should amend the employment ordinance. However, it helps to reflect the effort of the employees more accurately.

Thirdly, the SMW rate is always the most critical and controversial part of the whole policy. Although there are many pressure group suggested that shorten the review period to one year, SMW level change frequently is not a good things for both employer and employee. Also, there are so many data analysis and consultation during the review period. Two year review period seems reasonable. However, the SMW level is much lower than the basic living standard obviously, and the adjustment is always too little. The review system should be reformed. The basic living standard should be taken into account. Also, the increasing rate of SWM should never lower than the inflation rate. It helps worker to maintain a basic level of living standard.

Finally, foreign domestic helper should include in the SMW. Some opinion stated that if foreign domestic helper include in the SMW, they will take the jobs from native. However, there are some any country that include foreigner into their SMW. For example, Germany’s minimum wage applies to all workers who are employed in Germany, irrespective of whether they are German nationals or foreign nationals. (Federal Ministry of Labour and Social Affairs, 2015) It does not have any significant effect on the unemployment rate of local people. Moreover, it is about social justice which every people in our society should be treated equally.

After implementation of SMW, people noticed that SMW is not the panacea for solving the poverty and working poor problem. Other than reform the SMW, providing sufficient childcare service, legislate standard working hour, reforming CSSA, enhancing low-income allowance and financial support for working poor, all of them are critical for resolving the income inequality.

Conclusion

As Hong Kong is a well-known most economically free market in the world, many scholars felt surprised with the establishment of SMW in Hong Kong. (SCMP, 2015) This study helps us to have an all-rounded understanding for this paradigmatic policy change in Hong Kong.

In this study, we already go through the whole policy-making process of SMW. Poverty and income inequality are serious social issue in Hong Kong for a long time. However, the government usually maintain its liberal social welfare model, and just keep a minimum input in welfare. The close relationship between government and corporation prevent to adopt the unmarket-friendly policy which increases their expense. (Wong, 2014)

Dramatically, the policy windows opened around 2001. The combination of economic recession and increasing income inequality forced government to intervene. The case of the $7HKD cleaner acted as a important catalyst. After the failure of “Wage protection movement”, the provisional minimum wage commission was established to study the details of SMW. The minimum wage bill was introduced in the legislative council in 2009. After a long discussions and bill amendment, The minimum wage bill passed in Jan 2011 and finally came into force on 1st may 2011. Labour Department acts as the responsible Department for implementation and Minimum Wage Commission is the main department for evaluating SMW.

Undoubtedly, the establishment of SMW is a significant step for resolving poverty and income inequality problem. Pressure group and strong civil society played a great role on the policy-making process of SMW. However, the business sector still has a dominant power in the whole policy-making process, not only the Minimum Wage Commission, but also Labour Advisory Board and Legislative Council. (Lee, 2010) There will be a tough work for increasing the minimum wage level and setting a standard working hour in this semi-democratic political system. Unless the reform of political system, The government and the political process are still dominated by business interests. The situation of grassroots will not be improved substantially.

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