Seven Policies For Government to Consider--- 5. Increase minimum wage of Foreign Domestic Helpers and Local Workers

I propose that in principle, FDH’s minimum wage should be adjusted upwards together with the increase in minimum wage. For the former, a more reasonable minimum wage should be HKD7500/month since they work much longer hour per day and more days per week compared to the local workers. Yet the increase in FDH minimum wage should be paired with an increase in minimum wage of local workers as their wages are also damn low. So I propose that the minimum wage of local workers should increase to HKD60/hour (roughly HKD11040 per month). And both minimum wages should be adjusted according to the same mechanism (e.g. increase with inflation) executed before the jump.

Will the Policy End Up Hurting FDH and Local Workers?

I can draw the reference to the previous execution of minimum wage. Before execution, many experts, economist and policy makers, were worried that it will hurt employment and hence lead to higher unemployment rate. Practice after the imposition of minimum wage, show that unemployment rate was unaffected. Of course this case is not directly applicable to the FDH case, though it does supply a data point.

Another issue that may end up hurting the FDH is demand elasticity. First of all, though FDH competes with local workers, I believe they are of two different markets. The former stand-by almost 6/24, even after the normal working hours of about 12 hours; the latter serves only part-time, at a hourly rate far above the current FDH’s min wage or even the suggested new min wage. So the two are not substitutes by large.

So it leads to a simple elasticity of demand problem. I believe the demand for FDH and local workers are inelastic because it is hard to find substitute for 1) FDH market is separate to local market as mentioned above; and 2) FDH helps the middle class family by letting parents to work in their respective jobs , making “two-job family” possible. So the total revenues of FDH increases as %increase of their wages out-perform the %decrease in quantity demanded. So although the new min wage does displace some FDH and local workers, the total compensation of the FDH and local workers as a whole increases.

Lastly, Some Political Implications

The increased wages give more power to Hong Kong, and hence China, over the countries the FDHs come from, most notably the Philippines. and Indonesia In a world where China is engaging with the Philippines on the South Sea sovereignty, the heightened income from Hong Kong (China) to Philippines and Indonesia adds to the chips of China. Last but not least, it helps Chinese government’s Belt and Road Initiative as the Philippines is an important country for China to lease with.