Moving Up the Wage Scale

Hong Kong's economy has undergone a lot of changes over the past 30 years, evolving from a manufacturing city into a global financial centre. How has that affected people's earnings? Are they better off? And what about the people on the lowest rungs of the wage ladder?

These questions led the government to commission Dr James Vere of the Faculty of Business and Economics to conduct separate studies on earnings mobility and the minimum wage. His findings have helped to inform public debate on these two important topics.

To measure earnings mobility, Dr Vere collected and analyzed data in 2005 and 2008 on the relationship between people's past and current incomes.

"We wanted to see if people had a chance to move up the earnings distribution or were stuck in one place," he says. "As it turns out, over time in Hong Kong, people's earnings are becoming less mobile especially at the upper end. It's harder now to break into the top 20 per cent than it was. But the future is looking brighter at the lower distribution: it's easier to break out of the bottom 20 per cent."

His work on that project led the Provisional Minimum Wage Commission to recruit him to do a background study on the pros and cons of a minimum wage.

Dr Vere drew on experiences in other countries with particular reference to the UK, which Hong Kong was using as a model. The British raised the minimum wage too soon after its introduction, resulting in negative impacts for low-wage sectors.

"The goal of the minimum wage is to increase the wages of people at the low end. In the UK they found if they set the minimum wage at the level of the bottom five per cent, then five per cent of workers would get that level. But if they tried to go to the 10 per cent level, then problems would arise. Hong Kong has gone for the bottom 10 per cent," he says.

Whether that will have a negative impact remains to be seen. The minimum wage came into effect in May 2011. "The international experience is that it takes two years to be fully effective. My concern was that Hong Kong would implement it and after a few months, if unemployment did not become a problem, they would increase it. But it takes time to measure the impact."

In the meantime, Dr Vere is doing a study for the Asia Development Bank on earnings mobility in Hong Kong and China in the wake of free trade.

Dr James Vere received the Faculty Knowledge Exchange Award 2012 of the Faculty of Business and Economics for his work on "Social Mobility and Economic Policy in Hong Kong".