Friday, April 20, 2007

Handicapped Minimum Wages Laws

Today's SCMP reported that the Labour Departmentis considering a minimum wage "for the less capable and the handicapped," according to Permanent Secretary for Economic Development and Labour, Paul Tang Kwok-wai.

Consider the economics of minimum wages, using the most basic of economics tools: supply and demand analysis. There is an equilibrium wage for handicapped workers which, left to its own devices, the market will gravitate towards. Now the Labour Department steps in and sets a minimum wage. If that minimum wage is below the equilibrium wage, it will have no effect: firms will continue to pay the minimum wage in order to attract workers.

The more interesting case (included in the above diagram) is when the minimum wage is above equilibrium wage. At this new wage, the supply of labour will exceed the demand for labour; unemployment will increase by the amount of the difference. Thus when the government sets the wage, they also implicitly determine the level of unemployment that handicapped workers face.

The article suggests that the minimum wage backers may understand the limits in the ability of the government to dictate the wages of the handicapped. Handicapped people may have varying degrees of ability to carry out jobs, and so command different wages. Philip Yuen Chi-hoi, secretary general of the joint Council for People with Disabilities, suggested that there should be 3 different minimum wages for handicapped workers, depending on the degree of the handicap, which would be assessed by someone or other not yet specified.

I have a simpler suggestion, which avoids all the red tape implied by the proposed system. Why not have a continuum of wages, which vary with the ability of the handicapped person? And who better to judge the appropriate minimum wage of an individual than the handicapped person themselves and their employer? So why not leave it to them to determine what the appropriate wage should be? Oh wait... that's effectively the system we already have!

If we want to encourage employers to hire handicapped workers, then we should do so directly, by subsidising the wages of handicapped workers. If we want to increase the salaries of handicapped workers above their market level, then we should do so directly, via those same subsidies. And if we want to increase the unemployment rate of handicapped people, we should do just as the Labour Department has proposed.

The more important question I have is: why doesn't the Labour Department understand basic Economics?


cksy said...

is it a fiscal policy to give subsidy to handicapped employees?

subsidise>>>encourage employers to hire handicapped workers>>>employment rate increases>>>handicapped workers get more motivated and increase their productivity and stimulate their consumption because they now have a higher income>>>economic objectives achieved???

Anonymous said...

It seems that government officials think that introduce minimum wage can make them popular among minority group. But, what a simple economic concept. Really don't understand why only people in academic field against it but those minority would support it. Do all of them just think they are the lucky one that would not be fire off?
Or people just want to have a bet. Either they would get higher income after the introduce of the new policy, or they would get no job and can get social assistance ?

James Yetman said...

In reply to cksy, I wouldn't describe a subsidy to hanciapped workers as a fiscal policy per se. It has fiscal consequences, but the objective of the policy is not to steer the economy through the business cycle, but instead to improve equality.