(This essay was published in South China Morning Post on 25 February 2015.)
Since the adoption of minimum wage legislation in 2011, organized labor has been pushing for standard working hours legislation. If this becomes law, it will be a severe blow to Hong Kong’s labor market flexibility.
Unlike the minimum wage, which affects only the bottom end of the labor market, standard working hours affect the entire labor market, bringing serious employment distortion and reducing economic efficiency.
This problem is particularly acute in Hong Kong because working hours are widely distributed, making it nearly impossible to legislate uniform working hours without serious economic consequences.
In June 2012, the Labour Department published the highly informative Report on the Policy Study on Standard Working Hours. It confirmed that the dispersion of hours of work per week was very wide and found nearly 85 per cent of the labor force worked more than 40 hours a week.
It also showed that standard working hours legislation could have alarming impacts: employers could face an additional wage bill ranging from $8 billion to $55.2 billion, and 50.6 per cent to 91.1 percent of full-time employees could be impacted.
While these findings are useful, they do not explain why working hours are long and widely distributed. Understanding this is critical and relevant to the question of whether there should be standard working hours legislation.
In 1960 people worked an average 52.4 hours per week, which declined to 47.7 hours in 1985, and 43.3 hours in 2014. Working hours in Hong Kong have displayed the well-known “backward bending” labor supply curve found elsewhere in the world, in which labor supply tends to fall when wage rates rise. People will voluntarily choose to work fewer hours and spend more time at leisure (or unpaid voluntary work) when they become wealthier.
A revealing example of the distribution of weekly working hours can be seen in the differences between hours worked by men and women over the period 1985-2014.
In 1985, 67.1% of men in the labor force worked 48 hours or more per week; by 2014 that had fallen to 44.1%. For women workers, the percentage fell from 48.3% in 1985 to 30.7% in 2014.
At the same time, the share of part-time workers working fewer than 25 hours per week increased from 4.4% of male workers and 9.6% of female workers in 1985 to 9.1% and 13.9%, respectively, in 2014.
The growth in part-time, low-pay jobs resulted from labor market tightness, which induced married mothers to enter the labor force. When minimum wage legislation was introduced, it boosted their wages artificially and attracted even more casual workers at the low-pay end.
The influx of part-time and casual workers helped to reduce average working hours to 43.3 hours per week by 2014, despite labor market tightness. The reduction was greatest for jobs requiring fewer skills and training, for the less educated and for older workers.
These changes in the pattern of working hours and their distribution over time suggest three conclusions.
First, working hours are determined by supply and demand and they have declined as wage rates increased, with the exception of specific areas such as the finance and business sectors where there is an acute short supply.
Second, highly skilled workers in these areas are working longer hours due to labor supply shortages that reflect Hong Kong’s inadequate manpower strategies regarding education and attracting skilled immigrants.
Third, jobs requiring fewer skills are increasingly being filled by part-time and casual workers. Since 1996 the male labor force has remained stagnant in numbers. Total labor force has increased solely because of the entry of more women. The growing number of women workers has placed considerable stress on domestic life, especially with rapidly rising divorce rates and single-parent families.
These are the real dynamics of the labor market that were not discussed in the Labour Department’s Report. Imposing standard working hours on such a labor market would have very severe consequences. Where will the extra work hours come from?
Hong Kong can only find more hours by making more women enter the labor force, making them work longer hours, and delaying retirement. This would impact on fertility patterns, mother’s time spent with young children, the mobility prospects for younger workers, and intergenerational income inequality. It would amount to a disinvestment in our young people, and ultimately our future prosperity.
Standard working hours legislation solves no problems and further distorts the adjustment process in a tight labor market. Government and society should focus on better ideas.