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Hong Kong – Legislation on standard working hours won’t solve problem of long working day

25 February 2014

Following the announcement earlier this month that the Hong Kong General Chamber of Commerce opposed the proposed legislation on standard working hours, Chamber Chief Executive Shirley Yuen further outlined her objections in an article for the South China Morning Post.

Ms Yuen wrote on behalf of the Chamber of Commerce: Standard working hours will not, we believe, alleviate the problem of excessively long hours, and legislation risks lowering the flexibility of the labour market, as well as constraining Hong Kong's competitiveness and economic development.

The issue of long working hours is due to the severe labour shortage, and the solution to that problem is increasing our labour force. According to government statistics released this month, Hong Kong's unemployment rate stood at 3.1% in the November 2013 to January 2014 quarter, down slightly on the previous quarter, while underemployment also fell, to 1.3%. If current trends continue, the jobless rate will fall below the 3% threshold for the first time since 1997.

We might be heading down that road again, as the number of vacancies has been rapidly increasing for more than a decade - except for a slight change in direction in 2008 due to the financial crisis. To put it in numbers, in December 2002, the number of vacancies stood at 16,216, according to figures compiled by the Census and Statistics Department. This had more than doubled, to 36,507 by December 2007, and has continued to rise, to 78,299 last September (the latest figures available). This data clearly shows Hong Kong is suffering from a severe labour shortage, and stipulating standard working hours will only make it more difficult for companies to survive.

Moreover, overseas experience shows that standard working hours generally force employers to hire more part-time or casual employees, which will fragment jobs and exacerbate underemployment.

We support the policy objectives that proponents of standard working hours are trying to achieve, but we do not believe that introducing legislation will solve the issue of long hours. With Hong Kong's robust economy and acute labour shortage, legislation will stretch our labour market even more thinly, push up wages, and increase SMEs' operating costs.

The government should uphold the free-market economy principles on which Hong Kong has thrived. Rather than standardising working hours through legislation, employers and employees should draw up contracts based on the demands of work in individual sectors, stipulating job requirements, duties, working hours, and arrangements for overtime pay.

Legislation is a blunt instrument. Appropriate regulation can help steer timely adjustments to cope with the changing economic landscape. However, over-regulation will constrain the flexibility of the market.

When the economy goes south and businesses need to look for ways to cut costs, companies will have little choice but to cut their headcount if other means of adjustment are no longer available due to the need to comply with legislation on standard hours. The risk of pushing up unemployment becomes much higher, and low-skilled and low-productivity workers are most vulnerable.

Since the introduction of the statutory minimum wage, low-income workers' wages are calculated based on the number of hours worked, and their right to overtime pay is protected. The impact of standard working hours will have far-reaching consequences for both low-income employees and the entire workforce.

The 300,000-odd SMEs in Hong Kong currently account for more than 98% of local businesses, and they hire about 1.2 million employees. With small companies already struggling to cope with talent loss and increasing costs, standard working hours legislation would deliver a double blow to them.

To ease the pressure, a very simple two-tiered profits tax structure should be introduced. The standard profits tax rate can be cut immediately to 15% and the rate imposed on the first HKD 2 million (USD 257,813) of taxable profits further reduced, to 10%. According to 2011-12 government data, profits tax charged on the 75,500 companies with taxable profits of less than HKD 2 million (USD 257,813) was HKD 5.57 billion (USD 718 million) , accounting for just 4.7% of total profits tax revenue.

The adjustment will not complicate our simple tax system. Instead, it will reduce SMEs' tax burden and the increased cash flow will allow them to expand their businesses. Moreover, the proposal is unlikely to result in significant revenue loss for the government, because when SMEs expand their businesses, their profits will also increase and so will the amount of tax the government collects.

Ms Yuen concluded: Given that SMEs are the backbone of our economy, we hope the budget will focus on addressing the concerns of the business community, enhancing Hong Kong's competitiveness and promoting economic growth. This will ensure more resources are available for the well-being of the general public.

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