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Sunday, November 18, 2012

Subsidising low wages

Oxfam Hong Kong, Director General, Dr Stephen Frederick Fisher urges the authorities to introduce a low-income family allowance for the working poor. Suppose the government does as Mr Fisher suggests, the sorts of employers who underpay their workers will then rub their hands and say, "Wonderful. Now I won't have to bother myself about paying these people more. The government will do it for me." Employers will of course take advantage of it.

Hong Kong already offer subsidies of this kind at the moment with exactly these effects. Public housing with average rents of HK$1,200 a month amounts in practice to a wage subsidy, as does the more recent scheme to pay a HK$600 monthly travel allowance to every worker who makes less HK$10,000 a month.

The bosses just rub their hands and keep the wages down. It's one big reason that 550,000 households make less than HK$10,000 a month. This is almost a quarter of the households in Hong Kong, and in an economy where gross domestic product per household runs at HK$70,000 a month. It has also been getting worse. Only 340,000 households made less than HK$10,000 a month fifteen years ago.

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