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

Racial Discrimination and Modern Slavery

The giant gap between foreign domestic helpers (FDH) and local workers present a doubtful arrangement and impair Hong Kong’s image as an international financial center. While FDH received a minimum wage of close to HKD5000/month (i.e. slightly below HKD14/hour given a typical 12-hour-work-day and 28-day-work-month). Local workers received a minimum wage of $40/hour (i.e. roughly HKD13440/month given a 12-hour-work day and 28-day-work-month, as equivalent comparison to FDH).

I propose that in principle, FDH’s minimum wage should be in line with the prevailing wage of the local worker at the time. But as it is a rather progressive policy, I propose achieving the goal by phases.

*Adjustable as local minimum wage changes

This should remedy the racial discrimination against Filipino and Indonesian FDH. However there are still a few questions to the policy including whether it will hurt the FDH instead of helping them.

Will the Policy End Up Hurting FDH?

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.

I am also aware that as of now the FDH receive many perks such that its whole compensation is quite far above its prevailing minimum wage. I suggest that all the perks should be merged to the new FDH’s minimum wage starting 2029. This will give FDH freedom to choose the way they want to spend their previous perks. 

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 is 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-career 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, the total compensation of the FDH 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. In a world where China is engaging with the Philippines on the South Sea sovereignty, the heightened income from Hong Kong (China) to Philippines 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.