Good Honest Dollar $$

It may have taken seventy-eight years, but the debate over whether or not Hong Kong should have a minimum wage has finally been settled.

The result is a sensible outcome. At the expected level (see below), the new minimum wage will not compromise the city’s competitiveness or place an unreasonable burden on employers. Yet it will help address Hong Kong’s persistent problems associated with income inequality and the growing number of ‘working poor’ families.

But it is disappointing that domestic workers have been excluded from the legislation.

 
Background
In July this year, the Hong Kong government passed legislation guaranteeing minimum wages for the vast majority of employees within the city.

(According to The Economist, the idea of minimum wages in Hong Kong has been debated since 1932.)

Under the legislation, members of a task group chosen by the city’s chief executive will propose a minimum wage level, which the legislature will then accept or reject. The new wages, which will come into force next year, are to be reviewed every two years (AFP).

Whilst the precise rate for next year is yet to be confirmed, a level of close to HKD28 per hour (USD3.61) is widely anticipated (The Epoch Times).

The new law does not, however, cover domestic workers employed as live in help for Hong Kong families. These workers, many of whom are Filipino or Indonesian immigrants, are guaranteed a minimum monthly HKD3,580 as well as accommodation under existing law (Sydney Morning Herald).

 
A sensible decision ..
At the expected rate referred to above, those on the minimum wage will earn about HKD1,120 for a forty hour work week. This equates to a monthly income of HKD4,853.

To put this in perspective, the Hong Kong Council of Social Services puts the monthly income required for a single adult to remain above the poverty line at HKD3,300 (Epoch Times). And that’s just for a single: families obviously cost more. A family of say, four, could probably scrape by on HKD4853 per month – but only just.

Given this, a minimum wage at the expected level is hardly excessive. Nor is it overly burdensome on employers. In a rich world economy, wages that only just cover the cost of living are not too much to ask.

And it’s hardly as though the new law will compromise the city’s competitiveness: compared with elsewhere in the rich world (American dollar equivalent hourly minimum rates stand at $9.26 in Britain, $14.06 in Australia and a whopping $56.44 in Japan), Hong Kong workers on a minimum wage of USD3.61 per hour will still be dirt cheap.

(In native currency terms, minimum hourly wage rates in the above-mentioned countries stand at GPB5.93, AUD15, and JPY4,712 respectively.)

Nor will it cause much business to go elsewhere. The main types of workers who are expected to benefit (restaurant workers, security guards and cleaners) are not employed in sectors where operations can be relocated easily.

But it is necessary. Hong Kong ranks last in income equality out of thirty-eight countries and territories, according to the United Nations Development Programs 2009 Human Development Report (Sydney Morning Herald). Worse still, despite an unemployment rate of just 4.2%,  Hong Kong Council of Social Services estimates that 17.9% of the city’s population are poor (The Epoch Times). This means that a significant portion of Hong Kong’s residents live below the poverty line despite being employed.

That shouldn’t happen. Surely in any rich world city, those who work full time should have the right to expect to make enough money to provide basic necessities for their family.

 
.. but pity about the domestic workers
Nevertheless, the exemption of domestic workers from the new law is a great pity.

[As mentioned above, these workers are already granted a minimum wage under existing law (HKD3,580 per month plus accommodation).]

Granted, families who employ the services of these workers may not be enterprises or businesses. But they are still employers nonetheless. Those who work for them are as much employees as workers employed in any other sector of the economy. There is no reason why these workers should be entitled to the same minimum wage as everyone else.

Hong Kong’s new minimum wage law is sensible and should be welcomed. Pity it doesn’t apply to everyone.

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After a spate of worker suicides, questions must surely be asked about labour conditions at the Longhua complex in southern China operated by the Hon Hai Precision Industry Company (also known as Foxconn), the world’s largest contract manufacturer by revenue.

Most importantly:  should Apple, Dell, HP and others move their business elsewhere?

I don’t think so – at least not at this stage.

 
Background
According to the UK Telegraph, at least sixteen workers have attempted suicide this year at the plant.

Sadly, twelve of these have resulted in deaths.

The number of suicides is not statistically exceptional. According to the Wall Street Journal, the overall suicide rate in China is around fourteen per 100,000 people. At that rate, given the plant’s workforce of around 400,000, you would expect around fifty or sixty deaths in any given year.

Nevertheless, the sudden spate of these tragic events – most of which have occurred over the past two months – has raised alarm bells. Hon Hai’s customers, which include Apple, Dell, HP, Nokia, Motorola and Nintendo, are facing intense scrutiny with regard to there involvement with the firm.

 
Don’t take business elsewhere – yet
Still, western electronics firms are not likely to abandon such an important supplier.

Nor should they at this stage – neither business case considerations nor ethical considerations support this.

Let’s look at each of these in turn:

 
• Business case.

As the world’s largest contract manufacturer, Han Hoi has made itself integral to the manufacturing process of many of its customers. Extracting them from the supply chain, according to the Wall Street Journal, would be possible but difficult.

From a business case perspective, these operational concerns no doubt far outweigh PR considerations associated with the recent publicity surrounding these events.

 
• Ethical considerations.

Nor do ethical considerations themselves make a strong case for taking business elsewhere.

Reports about working conditions at the plant vary. On a BBC forum, for example, Bruce Blanche, a Canadian consultant in Shenzhen, describes prison like conditions and cites reports of workers being doing more than 100 hours per month. On that same forum however, workers at the plant, whilst agreeing that work conditions are intense, describe the factory as ‘top notch’ and ‘very good.’ And labour rights activists, according to the Wall Street Journal, say that whilst conditions are not good, they are improving and compare favourably with those of many other factories in China.

Given the mixed nature of these reports, it is far from certain that working conditions would be better with alternative suppliers – at least within China anyway.

 
A better way – send in the inspectors
But that is not to say that Apple and others should do nothing.

Apple, HP, Nokia and Dell, Motorola and Nintendo all say they have been in contact with Foxconn management and are investigating practices with regard to these incidents. Steve Jobs, for example, says that Apple is “All over this.”

Good. That is exactly what should happen. Foxconn should not be dumped, but it does need a wake up call. The arrival of workplace inspectors from Apple and others on their doorstep should get the message across.

Contract suppliers should only be dumped where work conditions are downright atrocious.

In contrast, in cases like Foxconn, where work conditions are tough but not atrocious (by Chinese standards), the factory shows signs of improvement, and extraction from the supply chain would have significant operational implications, suppliers should not be dumped but instead be worked with.

Foxconn should be cajoled, worked with and woken up.

They should not be dumped at this stage.

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I have a question for you.

How and when do you think the world might have found out about a massive explosion which killed thirty-five workers at an illegal Chinese mine on July 14 last year?

Immediate reports from grief-stricken relatives? No. The mine owner acted very swiftly to purchase their silence.

Local officials? Not likely. They issued a false report after pretending to investigate.

Journalists? Nope – bribed also.

The mine owner? Naturally, no.

So how and when did the world find out? Two months later via some brave soul in an internet chat room, according to a report in the International Herald Tribune.

As a result of this brave soul, twenty-five local officials were fired, twenty-two of them now under criminal investigation.

The debacle described above highlights two important points:

• continuing problems in China with respect to accountability; and
• the constructive role which online media can play in terms of whistle-blowing.

 
China’s never-ending accountability problems
The fact that an incident like this was exposed only through an internet chat room shows just how diabolical the situation really is with respect to accountability and worker safety in Chinese coal mines.

Even at the official rate, according to the article, the average death toll rate for Chinese coal miners stands at nine per day – a staggering forty times more than America. The problem is most acute in small mines, many of which are illegal, operate in more dangerous areas and have little apparent incentive to invest in safety. Apparently account for three quarters of the deaths but only one-third of production.

And even then, these are only the official figures. They do not take into account the scores of deaths which go unreported because local officials and journalists are so easily paid off.

The situation is completely unacceptable and international governments and unions should continue to apply pressure on China to undertake some form of meaningful action to address this downright awful situation.

 
The whistle-blowing role of online media
But on the bright side, the episode also highlights the constructive role which online forms of media can play in terms of corporate accountability.

As access to online media expands, so too will the capacity of individuals to blow the whistle on cover ups. It is one thing to lock in the loyalty of local officials and media (using handsome financial incentives), but persuading every single person who has access to a blog or some other form of online media to do the same would be extremely difficult.

In the new world, online media provides a wonderful mechanism to support whistle-blowing, and in many cases it, is only a matter of time before someone exploits this capability to expose even the most intricately planned conspiracy.

Of course, online media can also be a platform to spread misinformation, perhaps with malicious intent.

And unfortunately, the sad reality is that some firms will continue to attempt cover-ups of various kinds in spite of the increase risk of being exposed due to online media. Cover ups are a reality today, and will continue to be a reality throughout the foreseeable future.

But even so, the benefits of online media in terms of a whistle-blowing mechanism cannot be underestimated, and I would think that these benefits would far outweigh any associated drawbacks.

Where other mechanisms of accountability fail, it is wonderful that the online media provides those who wish to blow the whistle with an effective medium to do so.

Especially with respect to a grave tragedy like this.  

 
Over to you
Do you think online media helps to promote better practices in terms of corporate governance? Why/Why not?

This is a serious question, and the answer is a resounding no.

Even in the most hostile of industrial disputes, I do not believe that workers should resort to the practice of kidnapping or otherwise detaining company bosses against their will, and the number of cases in which this has occurred in recent months is somewhat concerning in my view.

That said, any company boss who falls victim to this type of practice would be well advised to ask serious questions about why it occurred and how the company can improve its performance in terms of human resource management.

 
Spreading beyond France?
The practice of disgruntled employees taking company bosses hostage during industrial disputes, to be released only after the demands of workers have been met, has long been common in France. Serge Foucher, the head of Sony in France, represents only the latest example. (In an attempt to secure more favorable redundancy terms, workers shut him into a meeting room on March 12, barricading the plant with huge tree trunks. He was released the following day)

But a report in The Economist last week described how the last few months have seen several occurrences of the practice in other countries as well, and with the onset of difficult economic times, there are fears that the practice could become more common beyond French borders. 

(These kidnappings typically occur in response to disgruntlement over mass redundancies, factory closure or relocation, or disputes relating to entitlements for laid off workers)

 
No way to settle a dispute
Tempting as it may be from the viewpoint of disgruntled workers, I do not believe that the practice of kidnapping company bosses should be condoned under any circumstances.

For one thing, it is dangerous. Whilst physical harm or injury is generally not the intent of those workers who partake in this kind of activity, human behavior is unpredictable, and with stakes and emotions running so high, things could get out of hand very easily. I would think that it would only be a matter of time before someone gets hurt if this type of practice becomes more common outside of France.

Moreover, there are better ways to solve disputes. Granted, workers may not have many good options in the event that management is not willing to engage in constructive negotiations and make reasonable compromises. But even then, there are surely better options than kidnapping.

 
A wake up call to management
Nevertheless, whenever this type of thing happens, it should serve as a wake up call to management.

Granted, you never expect decisions such as plant, factory or mine closures, or any other forms of mass redundancy to be especially popular, and no matter how well the firm handles these types of matters from a personnel perspective, I would not imagine that one or two incidents of unruly behavior from individual employees would be entirely unusual.

But I could not imagine that a whole group of staff would act together in this manner unless there were serious problems with the company’s handling of employee relations. Even plant closures, if handled properly should not lead to this, and where bosses find themselves caught up in this situation, any half sensible management team would start asking serious questions about what has lead to this situation and why employee relations have deteriorated to such an extent.

 
Should police become involved?
An intriguing final question is that of whether police should become involved.

On one hand, holding a person against their will represents a criminal act in most western countries. You can’t have people taking the law into their own hands in this manner without their being consequences, and police involvement may serve as a deterrent toward any future action of this kind.

On the other hand, reluctance on behalf of police to involve themselves in what is essentially an industrial dispute is more than understandable. For one thing, police interference could potentially cause the situation to escalate if it leads to panic on the part of one or more of the perpetrators.

Also, there is a much greater prospect of the restoration of some form of harmony in terms of workplace relationships in cases where the staff involved can be persuaded to let the boss go voluntarily rather than by force.

Personally, I don’t have a particularly strong opinion as to whether police involvement in these matters is warranted, but I would be very interested to hear your viewpoints on this issue.

In last week’s discussion, I wrote about the importance of the concept that male and female staff should be entitled to receive substantially similar levels of remuneration when performing work of a substantially similar nature.

Today, I would like to briefly examine some evidence relating to the magnitude of the problem of gender based discrimination in remuneration practices.

 
A simple, but not so useful measurement
The simplest and most common measurement of gender based equality in remuneration levels compares the Average Weekly Earnings for full time female staff with their male counterparts. In this regard, the average earnings of women employed on a full time basis in America is equivalent to just seventy-five per cent of that of a full time man. (refer article)

At first glance, it would be tempting to look at this statistic and conclude that gender based discrimination in remuneration practices is rampant across America.

But the above measurement paints a somewhat misleading picture, and the gender based pay gap which it implies does not necessarily represent incontrovertible evidence of discrimination in remuneration practices.

Men and women are not the same. Overall, neither gender is superior or inferior to the other. Nevertheless, each exhibits differing tendencies with respect to a wide range of employment related matters and decisions. Such differences include, but are not limited to, the type of industries in which they are employed, educational qualifications, levels of managerial responsibility and authority, family related decisions, preferences for part time or full time work, and time spent in and out of the workforce.

As a result of these differences, one would not expect the average earnings of women and men to be equal, even in absence of any form of discrimination based upon gender. Accordingly, measurements which merely tell us what we would expect (that a gender based pay gap exists) are of limited value in terms of understanding the impact of gender based discrimination upon modern remuneration practices.

 
A more revealing study
In order to gain a clearer picture with respect to the gender based pay gap, it is necessary to examine its nature and composition in greater depth, and to attempt to identify and quantify any factors which are known to contribute toward the gap.

In this regard, an American study completed in 2007 by AAUW researchers Judy Goldberg and Catherine Hill is of significantly greater value.

In this study, the researchers attempted to explain away the pay gap using twenty-six variables which are known to affect remuneration levels. Their conclusions – even after excluding the effects of such factors, the average American woman who is employed on a full time basis still earns approximately five per cent less than her male counterpart one year after completion of her studies. This pay gap increases to twelve per cent ten years after graduation.

Accordingly, it would appear that average remuneration levels of American women are below those of their male counterparts even when performing work of a substantially similar nature.

 
Does this necessarily indicate discrimination?
Probably, but not necessarily.

It is likely that a portion of the gender based pay gap referred to above can be attributed to discriminatory practices in remuneration. But it is also possible that unknown factors, or factors for which the effect is not possible to estimate or quantify also account for some portion of the unexplained gap.

For example, Goldman and Hill themselves acknowledge the possibility that part of the gap could represent a manifestation of the individual bargaining process as opposed to gender based discrimination. For example, it is possible that women have an overall tendency to: (a) be less assertive than men during salary negotiations; (b) have lower salary expectations than men; or (c) prefer remuneration arrangements which are less competitive in nature, as opposed to the ‘winner takes all’ schemes which are preferred by some men.

To the extent that such tendencies contribute to the gender based pay gap, they do not necessarily represent a form of unfairness or injustice. In any form of bargaining, those who adopt a more assertive negotiating position tend to derive more favorable outcomes than those who don’t.

Salary negotiations are no exception, and individual staff may achieve varying results according to the manner in which they negotiate, even when compared to others in similar roles within the same industry or even within the same firm.

It’s not necessarily unjust – it’s simply the nature of the bargaining process.

 
But surely some discrimination is occurring
Nevertheless, given the results of the Goldman and Hill’s study, I find it very difficult to believe that modern remuneration practices are completely free of gender based discrimination, particularly in America and probably in many other parts of the western world.

To the extent that this is indeed the case, such practices represent a breach of the human rights and not be considered to be acceptable.