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

I suggest that, in principle, the minimum wage for foreign domestic helpers (FDH) should be increased along with the general minimum wage. For the former, a more reasonable minimum wage should be HKD 7,500 per month, as they work longer hours per day and more days per week compared to local workers. However, the increase in the minimum wage for FDH should be synchronized with that for local workers, as their wages are equally low. Therefore, I propose to raise the minimum wage for local workers to HKD 60 per hour (approximately HKD 11,040 per month). Both minimum wage standards should be adjusted according to the same mechanism before the leap adjustment (e.g., increasing with inflation).

Finally, we suggest adjusting the minimum wage for FDH over two years based on the contract:

First year: increase to HKD 6,250

Second year: increase to HKD 7,500

Will this policy ultimately harm the interests of FDH and local workers?

I can refer to the implementation of the previous minimum wage. Before its implementation, many experts, economists, and policymakers were concerned that it would harm employment, leading to an increase in the unemployment rate. The practice after the implementation of the minimum wage showed that the unemployment rate was not affected. Of course, this case does not directly apply to the FDH case, although it does provide a data point.

Another issue that may ultimately harm FDH is demand elasticity. First, although FDH compete with local workers, I believe they belong to two different markets. The former's standby time is about 6/24, while the latter's normal working hours can even reach around 12 hours; the latter is only part-time, with an hourly wage much higher than the current minimum wage for FDH, even higher than the proposed new minimum wage. Therefore, the two are largely not substitutable.

This leads to a simple issue of demand elasticity. I believe that the demand for FDH and local workers is inelastic because it is difficult to find substitutes: 1) As mentioned above, the FDH market is separate from the local market; 2) FDH allow parents to engage in their respective jobs, thereby helping middle-class families achieve a "dual-income family." Therefore, as the percentage increase in FDH wages exceeds the percentage decrease in demand, the total income of FDH will increase. Thus, although the new minimum wage does replace some FDH and local workers, the total compensation for FDH and local workers increases overall.

Finally, some political implications

The wage increase gives Hong Kong and even China greater power over the source countries of FDH, especially the Philippines. In the context of China's confrontation with the Philippines over the sovereignty of the South China Sea, the increase in income from the Philippines and Indonesia to Hong Kong, China, increases China's bargaining power. Last but not least, it helps the Chinese government's "Belt and Road" initiative, as the Philippines is an important country for China's leasing.