Report of the

Provisional Minimum

Wage Commission

October 2010

Report of the Provisional Minimum Wage Commission Contents

Contents Page

List of Figures 2

List of Tables 4

Chairpersons Foreword 5

Members 7

Executive Summary 8

1 Introduction 12

1.I Background 12

1.II Terms of Reference 12

1.III Membership 13

2 The Work of the Provisional Minimum Wage Commission 15

2.I Underlying Principles in Discharging Duties 15

2.II Details of the Work of the Provisional Minimum Wage Commission 17

3 Characteristics of Low Pay 25

3.I Employees within the Lowest Overall Wage Decile 28

3.II Low Paying Sectors 35

4 Considerations Underlying the Recommendation of the Initial 44

Statutory Minimum Wage Rate 4.I Views of Stakeholders 44

4.II Basket of Indicators 50

4.III Other Relevant Considerations 56

4.IV Latest Performance of the Selected Indicators 61

5 Assessment of Impact 78

5.I Impact on Employees 80

5.II Impact on Businesses 94

5.III Impact on Output Prices and Inflation 97

5.IV Sensitivity Tests 100

6 Deciding the Recommended Initial Statutory Minimum Wage Rate 104

6.I Major Considerations 104

6.II The Recommended Initial Statutory Minimum Wage Rate 112

7 Recommendation 113

Appendices I Summary of Statutory Minimum Wage Systems in Other Places 116

II Study Missions and Lessons Learnt 120

III List of Stakeholders and Interested Parties that Attended Consultation Meetings 124

IV Summary of Views of Stakeholders Collected 127

V Detailed Coverage of Low Paying Sectors 136

VI Methodology of Impact Assessment 137

VII Statistical Appendix 143

Abbreviations 174

Glossary 175

References 180

P. 1

Report of the Provisional Minimum Wage Commission List of Figures

List of Figures

Page 2.1 Deliberation process of PMWC 18

3.1 Distribution of employees within the lowest overall wage decile by sector 28

3.2 Socio-economic profile of employees within the lowest overall wage decile 30

3.3 Employees by occupation in lower wage bands 30

3.4 Distribution of service and elementary workers within the lowest overall 31

wage decile by sector

3.5 Distributions of female employees within the lowest overall wage decile by 31

occupation and sector

3.6 Employees in low wage bands by gender 32

3.7 Distribution of employees within the lowest overall wage decile by 32

education level in each age group

3.8 Percentage of employees within the lowest overall wage decile by age 33

3.9 Distribution of part-time employees by gender and pay 34

3.10 Percentage of employees within the lowest overall wage decile by nature of 35

employment

3.11 Distribution of enterprises by low paying sector 35

3.12 Distribution of employees by hourly wage 38

3.13 Share of staff cost and profit ratio in LPS 39

3.14 Distribution of employees within the lowest overall wage decile in the 40

retail sector and percentage of these employees within each sub-sector

3.15 Distribution of employees within the lowest overall wage decile in the 41

restaurants sector and percentage of such employees within each sub-sector

3.16 Percentage of employees within the lowest overall wage decile in the low 42

paying sectors

3.17 Distribution of employees within the lowest overall wage decile in other 43

low paying sectors

4.1 The economic recovery gained further momentum in the first half of 2010 62

4.2 Price pressure returned gradually since early 2010 63

4.3 Labour market conditions improved in tandem with the progressive 65

economic recovery

4.4 Hourly wage by LPS and other sectors 67

4.5 Median hourly wage by educational attainment and occupation 68

4.6 (a) Proportions of employees by employment nature 70

(b) Proportions of overall employment by employment status

P. 2

Report of the Provisional Minimum Wage Commission List of Figures

Page 4.7 Average annual labour productivity growth rate of Hong Kong and other 71

economies, 2000-2009

4.8 Profit ratio analysed by low paying sectors and other sectors 74

5.1 Number and percentage share of employees involved 81

5.2 Percentage wage increases for involved employees under different SMW 83

scenarios

5.3 Percentage increases in wage bills under different SMW scenarios 83

5.4 Estimated number of employees who may be laid off under different SMW 85

scenarios

5.5 Estimated reduction in working hours under different SMW scenarios 86

5.6 Socio-economic profile of employees involved at the lowest wage decile 88

5.7 The ratios of the median, the 75th percentile, and the 90th percentile to the 89

lower end percentiles under different SMW scenarios

5.8 Ratios of costs of meal benefits to total wage bill of employees involved in 91

restaurants under different SMW scenarios

5.9 Profit distributions of restaurants by type 92

5.10 Total restaurant receipts 93

5.11 Estimated profit ratios of LPS under different SMW scenarios 95

5.12 Estimated number of enterprises turning into negative profits in LPS and 96

different SMW scenarios

5.13 Estimated price impact on LPS under different SMW scenarios 99

5.14 Estimated ranges of impact of Composite CPI and CPI(A) under different 100

SMW scenarios

5.15 Ratio of guaranteed year-end payment/bonus to total wage bill of 102

employees involved in LPS under different SMW scenarios

5.16 Profit distribution of retail trade and restaurants before and after taking into 103

account depreciation

P. 3

Report of the Provisional Minimum Wage Commission List of Tables

List of Tables

Page 3.1 Make-up of employees within the lowest overall wage decile by LPS in the 27

second quarter of 2009

3.2 Socio-economic characteristics of employees within the lowest overall wage 29 decile

3.3 Share of staff cost, profit ratio and hourly wage rate in LPS 37

3.4 Profit ratios for restaurants with fewer than 10 employees 42

4.1 Summary of the Basket of Indicators 51

4.2 The ratio of job vacancies per 100 unemployed persons 66

4.3 25th percentile and median hourly wage by age group and gender 67

4.4 Operating characteristics of enterprises analysed by sector in 2008 (for 73 enterprises with employees only)

4.5 Hong Kongs world rankings of economic freedom and competitiveness 76

4.6 Year-on-year change of average monthly employment earnings in May - July 77 2010

5.1 Groups of employees affected by different SMW test levels 82

5.2 Proportion of part-time employees 90

P.4

Report of the Provisional Minimum Wage Commission Chairpersons Foreword

Chairpersons Foreword

1 The Statutory Minimum Wage (SMW) has been the subject of debate in Hong Kong for a number of years. In parallel with the preparation of legislation, the Government established the Provisional Minimum Wage Commission (PMWC) in February 2009 and provided us with a specific set of Terms of Reference.

2 The advice and recommendations we make are the unanimous agreement of all members of the Commission. We hope that our reaching consensus over an otherwise controversial issue would serve as a clear demonstration of the ability of Hong Kong that it can deal with other endeavours in a harmonious, rational and impartial manner resulting in a win-win situation.

3 With a view to properly completing our task, we designed our modus operandi as a consensus-building process. The desirability of providing recommendations that have been unanimously agreed upon is trite. Consensus tends to encompass understanding of and respect for different viewpoints. It also helps to avoid inclinations focusing on a narrower perspective. Results flowing from such a process would generally be better regarded and attract more support.

4 We have therefore agreed at the outset that whilst ensuring transparency of and public accessibility of the evidence and data we would rely on, confidentiality as to our deliberations must be maintained. This enables us to have rational, frank and constructive discussions of all relevant perspectives without undue influence or pressure that might undermine the consensus-building process we have devised.

5 Our task could not have been completed without the diverse but valuable and candid views provided by stakeholder groups and individuals representing a broad range of interests and perspectives. The importance of listening directly to the views of the stakeholders cannot be understated. We thank those who have sincerely and generously shared with us their thoughts on the subject and provided constructive advice and support to our work.

6 The evidence collected during the consultation processes together with the data derived from the Annual Earnings and Hours Survey enabled us to formulate and refine our recommendations. We thank the Secretariat for their work, especially the numerous economic modelling and analysis that have to be undertaken to facilitate the iterative process of our discussions. Our thanks also go to the Labour and Welfare Bureau, Labour Department, Census and Statistics Department and Economic Analysis and Business Facilitation Unit of the Financial Secretarys

P. 5

Report of the Provisional Minimum Wage Commission Chairper