Hong Kong Plans First Increase to Minimum Wage as Costs Rise

Hong Kong’s government plans to raise the city’s minimum wage by 7.1 percent, the first increase since introducing it last year, helping residents squeezed by inflation and the world’s highest home prices.

Hong Kong’s government plans to raise the city’s minimum wage by 7.1 percent, the first increase since introducing it last year, helping residents squeezed by inflation and the world’s highest home prices.

Hourly salaries will rise to HK$30 ($3.90) on May 1, 2013, up from the current HK$28, Labor Secretary Matthew Cheung said yesterday at a press conference.

Chief Executive Leung Chun-ying, who has been buffeted by student protests and low popularity since taking office on July 1, has pledged to tackle Asia’s biggest wealth gap as the division between poor and rich widened to its worst level since at least 1971. The proposal will bolster the wages of about 327,200 employees, or 10 percent of the city’s workers, according to a earlier report by a government commission.

The increase will “help the grassroots layer of the labor force enjoy growth in actual wages,” said Raymond Yeung, a Hong-Kong based economist at Australia & New Zealand Banking Group Ltd. (ANZ)

Hong Kong implemented its minimum wage in May 2011. Inflation jumped 5.3 percent last year and may be 3.9 percent this year, the government said Nov. 16.

On the day Leung took over on July 1, the 15th anniversary of Hong Kong’s handover to China, about 112,000 people took to the streets for causes including minimum wages, income disparities and human rights abuses in China.

Wealth Gap

The average gross household income of the poorest 10 percent of the population fell 16 percent to HK$2,170 a month in 2011, from 10 years earlier, according to a June government report. The comparable income for the richest 10 percent jumped to HK$137,480 a month, a 12 percent increase.

Home prices in Hong Kong have surged to become the world’s most expensive, fueled by record low interest rates and an influx of mainland Chinese buyers. That prompted the government to impose a 15 percent tax on foreigners and companies buying homes, and increase a re-sale duty on Oct. 27.

Labor groups wanted to raise minimum wages to at least HK$33 an hour, while employers sought to hold them at HK$28, according to preliminary findings by the commission. The median hourly salary for Hong Kong workers was HK$52.4 in May and June of 2011, according to the study.

Some industries such as restaurant operators would be squeezed by both higher wages and rents, Yeung said. “They may need to adjust their business model, or they may even need to cut their staff hours, or the number of staff,” he said.

Slowing Growth

The wage increase comes as the city faces slowing growth. The economy may expand 1.2 percent this year, the government said Nov. 16, which would be the slowest pace since 2009 when the economy contracted 2.6 percent. Gross domestic product increased 5 percent last year and 7.1 percent in 2010.

The commission estimates the city’s unemployment rate will rise 0.3 percentage point in the first half of next year because of the minimum wage increase, assuming the economy grows at 1 percent in 2013, Cheung said yesterday.

Hong Kong has surpassed Paris as a more expensive city for expatriates, according to a survey released yesterday by ECA International, based on the cost of day-to-day goods and services which included items such as groceries and clothing while excluding rent and cars.

To contact the reporters on this story: Sandi Liu in Hong Kong at sliu60@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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