Focus on the minimum wages system in Hong Kong and explain its short comings.

II. RESEARCH DESIGN will include:

A.  A narrative of the project in the sequence in which the research segments or experiments will be performed;

B.  A justification for each method or approach and for the number of samples or replicate data and the controls to be used;

C.  A flow chart.

 

 

Theory

Supply of labor curve

The amount of labor that workers supply is generally considered to be positively related to the nominal wage. Economists graph this relationship with the wage on the vertical axis and the quantity of labor supplied on the horizontal axis. The supply of labor curve then is upward sloping, and is shown as a line moving up and to the right.

The upward sloping labor supply curve results from the fact that, as wages rise, people in the labor force are incented to spend less time in leisure and more time working while people outside the labor force are incented to join the labor force. As wages rise, the cost of spending time in leisure and the cost of not being a labor force participant rises.

[edit] Demand for labor curve

The amount of labor demanded by firms is generally assumed to be negatively related to the nominal wage; as wages increase, firms demand less labor. As with the supply of labor curve, this relationship is often depicted on a graph with wages represented on the vertical axis, and the quantity of labor demanded on the horizontal axis. The demand for labor curve is downward sloping, and is depicted as a line moving down and to the right on a graph.

A firm’s cost is a function of the wage rate. As the wage rate rises, it becomes more expensive for firms to hire workers and so firms hire fewer workers.

[edit] Supply and demand for labour

 

Combining the demand and supply curves for labor allows us to examine the effect of a minimum wage. We will start by assuming that the supply and demand curves for labor will not change as a result of raising the minimum wage. This may be an incorrect assumption since jobs this low on the demand curve may be so integral to a business’ function that they will not simply disappear because the business has to pay more to hire people for those positions.

The point at which the demand for labor curve and the supply of labor curve intersect is the labor market equilibrium. At the equilibrium, the number of people seeking jobs (the quantity supplied of labor) equals the number of jobs available (the quantity demanded of labor). If the wage rate rises above the equilibrium wage as shown in this chart, then the number of people seeking jobs would seem to exceed the number of jobs available. If the number of jobs is thus negatively affected, there would be fewer jobs available, and would theoretically lead to unemployment. Hence, in the absence of government intervention, competition among workers for the limited number of jobs would cause wages to fall until the wage rate reached the equilibrium. A minimum wage prevents wages from falling.

 

 

 

 

 

Hypothesis

The introduction of the Minimum wages systems boost the firm tightening their cost, that is a negative effect on the low income group whilst a positive effect on business and competitiveness. Fox example, a contract cleaning industry, the minimum wage has protected employment and encouraged companies to tender their contracts on the basis of the service they can provide rather than how little they pay their staff.

 

Firms would decide to make process of Introduction of computerized monitoring for cost lowering rather than implementation of wage minimum scheme.

Minimum wage is an argumentative subject of Hong Kong’s economy. On one hand, the installation of the minimum wage will enhance the living standard of the grass-rooted. On the other hand, it may harm the investment atmosphere. Here lie the points.

The labour market in Hong Kong, especially for the low-income group is under monopolistic competition. As the market is free for sellers and buyers to entry, the labour force is enlarged with large labour market. Since the labour supply is sufficient, many employees are under control of the employers.

From the viewpoint of the low-income earners, the increase in disposable income can be reflected in higher living standard. As their life become easier, their cost of committing crimes like shoplifting increases, so the crime rate will be decreased. Besides, the income gap will be narrowed as a result of the minimum wage.

However, the minimum wage created problems. Firstly, the minimum wage is a kind of price floor, it increases the cost of labour supply. Second, with the increase in the wage, employer will adopt alternative method to reduce the production cost for maintaining same profit margins. Labour consequently may be replaced by machinery. The unemployment rate may increase afterwards. Thirdly, the government expenditure of helping the unemployed may be increased due to increasing unemployment problem.

The increase in salary may be offset by the decrease in welfare and over-time working

 

Reduces profit margins of business owners employing minimum wage workers, thus encouraging a move to businesses that do not employ low-skill workers

 

MW would not be affected because these wages were never based on the MW anyway, they were based on what employers believed they needed to pay for these workers and what workers believed they needed to be paid for this work.

Methodology

 

 

The first stage of the research has been a review of the existing literature on the change of environment, cause difficulty in measurement of work performance and wages distribution by senior level. The literature review concentrates on several areas, first minimum wages system actually help the low income group less that then real expects. Second it eventually boosts the company made structural reform, cost distribution, resource reallocation. Thirdly, it puts the low income group into a risks.

 

The primary methodology consists of three stages: A detailed Questionnaire will be randomly distributed to the public in Hong Kong. This will be undertaken between March 2008 to Jun 2008.

 

During the period, a total of 2265 self-administered questionnaires were distributed to working district Kung Tong, Yau mei tau and Mongkok. At the end of June, 1689 copy of that questionnaires collected, with a response rate of 74.57%. After screening, glancing and deletion of missing items, a final sample is 1336.

 

 

 

 

Approaches to determining levels of pay variation

1.       There are two basic approaches to determining “appropriate” area pay relativities.  The Cost Compensation approach tries to measure the cost disadvantages in an area, such as high housing costs or travel to work costs, and to identify the level of compensation that needs to be added to pay to compensate workers for these higher costs so that they receive the same ‘real pay’ level for the same work throughout the country.  The more analytical Labour Market approach estimates the required pay differential by observing what pay rates actually are in different areas.  The approaches are complementary rather than alternatives, but are considered separately below.

 

Cost compensation

1.       The cost compensation approach attempts to estimate the addition to some average or base level of pay that would compensate for differing local conditions.  It does this by valuing the relative advantages and disadvantages in each area compared to some specific base area.  Some of the characteristics that should be taken into account are cost of living, cultural attractions, cost, availability, and quality of housing, quality of schools, hospitals etc. In reality, however, many factors cannot be valued and most assessments using this approach focus on a few key measures, such as the cost of housing.  Whilst simple and relatively transparent, this approach runs the risk of seriously over or under-shooting the level of necessary compensation.  In particular, the approach does not take into account the state of the labour markets in different areas.

 

1.       Cost compensation formed the basis of calculating London Weighting in the Payboard’s Report of that name in 1974, and organisations such as Incomes Data Services and the Labour Research Department continued to update the findings (IDS stopped in the late 1980’s), although the basis upon which the calculations were made became increasingly out of date.  Some more recent analyses from the Office for National Statistics (ONS) and National Economic Research Associates (NERA) help give an indication of cost differences around the country.

 

Office for National Statistics

1.       In November 2004 ONS published estimates of regional price level comparisons.  The table below sets out the results for national weights, and the regional differences using the North East of England as the base region[1].

 

Table 1: Average Price in Each Region, Relative to National Average Price

	National Weights (UK=100)	National Weights (North East=100)
North East	94.2	100.0
North West	96.9	102.8
Yorkshire and Humberside	94.2	100.0
East Midlands	97.4	103.4
West Midlands	97.8	103.8
Eastern	101.1	107.3
London	109.7	116.5
South East	105.3	111.8
South West	101.3	107.5
Wales	93.1	98.8
Scotland	94.5	100.3
North Ireland	95.8	101.7

 

1.       Two things are striking about this analysis: average prices are very similar in most regions, with the South West and Eastern Regions marginally higher; however, average prices in London, and to an extent the wider South East, are substantially above the UK average, and some 16% and 12% respectively above those in the North East.  ONS says that three-quarters of the difference in average prices is explained by the relatively higher owner-occupier housing costs in London and the South East.