It is good to hear the Provisional Minimum Wage Commission has finally hammered out a consensus on Hong Kong's first statutory minimum wage rate after a long-running tussle. Members have reportedly settled for an HK$28 hourly floor rate.

The agreed rate is obviously the result of a delicate balancing act between HK$24 and HK$33 advocated by local businesses and unionists respectively as members have been deadlocked over a few bucks with each side standing firm on its battlelines. The middle-of-the-road approach is a wise move to get the minimum wage off the ground as it serves to balance the varying interests of the working class and local businesses as well as easing the growing anti-business sentiments in the city.

Despite that, it remains up to Chief Executive Donald Tsang to make the final decision, one should note that the commission recommendation is a unanimous one, making it hard for our leader to say no. It signifies the art of compromise between different stakeholders who were willing to bridge their differences through a great deal of collective effort and concessions. The commission embarked on this tug-of-war over 18 months, after factoring in overseas experience, arguments of Hong Kong workers and employers, and data from the economy and the labor market.

According to the commission's chairwoman Teresa Cheng, in the process of reaching the consensus, the commission's prime concern was to avoid setting a rate that could pose an adverse impact on our labor market, on Hong Kong's economic development or on its competitiveness.

It is never easy to tread a fine line between too little and too much. A unanimous recommendation will help push the community to come to a general consensus over this contentious issue. It will make it more acceptable to different parties at the Legislative Council (LegCo) which becomes the next battlefield over the wage level.

It is true that whatever the wage will be, it will not make everyone happy and some people are bound to be upset. According to the Census and Statistics figures, an hourly rate of HK$28 would give a pay raise to over 300,000 people, or 11.3 percent of the workforce. But unionists lobbied for a higher rate of HK$33 an hour, insisting that this should be what the unions call a decent living wage.

Meanwhile, employers continue to resort to scare tactics, threatening to cut staff and increase prices to offset the upsurge in operating costs. Even Michael Chan, chairman of fast-food chain Cafe de Coral, has warned his group may issue a profit warning if the proposed hourly rate becames law. The Liberal Party has also raised fears that a rate of HK$28 might throw 90,000 workers out of the labor market.

However, one should not take their bluffing tactics too seriously. It is common knowledge that rent, not wages, contributes to the high operating costs of running a business in the city. Indeed, it can be argued that a higher statutory wage will motivate employees to work harder and become more productive as well as to stimulate local consumption when low-income people are armed with more cash, not to mention the fact that employers now have a good excuse to mark up prices to make more profits.

Overseas experience has told us that the real impact of the minimum wage is on employer profits and sales prices with a small part on employment. But there are always two sides of the same coin. The other side of the coin is that fewer working hours means less pay. The government has predicted that, if the rate is HK$28 an hour, businesses in property management, security, cleaning, services for the elderly, hairdressing and other personal services will be hardest hit. Some employers may even force their workers to turn into self-employed persons to avoid paying the higher rate and require them to contribute to their mandatory provident fund schemes.

To avoid hampering the business environment and local employment, it is wise for the government to draw on the experience in the UK, where the minimum wage has had little negative impact on employment levels and businesses have smoothly adapted themselves to the change. Nevertheless, despite its plain sailing at the beginning, employment fell sharply in 2006 as the minimum wage rate subsequently rose steeply.

It is therefore advisable not to set the minimum wage at too high a level. An hourly rate of HK$28 should be deemed as reasonable and be relatively easy for the market to digest without causing any irrevocable economic repercussions. After all, the agreed rate only brings closure to the first round of the battle. The government will have to convince Legco members to accept the rate before it officially takes effect. If the Legco eventually vetoes the proposed rate, it will mean another round of an endless battle.

Furthermore, the government should not be naive enough to believe that an agreed rate will ease the frustrations of the low-income group and resolve the issue of income disparity in the city. The government should continue to work hard on economic restructuring with providing more vocational training for the underprivileged.

The tug-of-war has dragged on for too long. Lawmakers should get the minimum wage started.

The author is a current affairs commentator.

(HK Edition 09/03/2010 page4)