3 ways to improve Hong Kong’s labour import scheme for the city’s benefit

Migrant workers are younger, cheaper and more energetic than locals, according to at least some of Singapore’s employers. Currently, employers the world over – including in Australia, Japan, Singapore, Taiwan and the US – are clamouring for migrant workers to fill low-skilled jobs. Hong Kong employers are no different. Faced with persistent talk of critical labour shortages in key industries, the Hong Kong government has relented on admitting migrant workers. At present, the Supplementary Labour Scheme allows migrants to work in Hong Kong only after approval by the commissioner for labour, as advised by the Labour Advisory Board. The tripartite board is made up of representatives from the government, employers and workers. Last Tuesday, the government announced it would directly allow 20,000 migrants to work in the construction, transport and aviation industries, circumventing the Supplementary Labour Scheme. Employers must pay each migrant worker no less than the median wage of local workers, pay a retraining levy of HK$400 per month to the government, and may only hire one migrant for every two local workers. In addition, the government will suspend the Supplementary Labour Scheme for 26 occupations including hairstylists, waiters and cashiers. Let’s leave aside the issue of how the admission of 20,000 migrant workers would affect the wages and progression of local workers and look at how the government should administer this scheme to maximise benefits to society and the economy. The administration must take two factors into account. First, that the potential supply of migrant workers at relatively low wages to Hong Kong (like that to Singapore) is huge. In the language of microeconomics, the supply is very elastic. Second, that businesses, even within the same industry, differ in their “need” for migrant workers. The very elastic supply of migrant workers means they will compete for the jobs, including by paying fees to facilitators. The higher the wages migrant workers get in Hong Kong, the higher the fees they would be willing to pay. For instance, Singapore does not regulate the wages of migrant workers. Yet, they can pay over US$3,500 to get jobs there. Some businesses are more automated and better managed, whereas others rely on old-school methods. As a result, the effect of migrant workers on productivity will differ among these businesses. Ideally, migrant workers should be allocated to businesses that can make best use of them. By contrast, allocating migrant worker quotas by administrative fiat without any charge could leave scope for rent-seeking and, worse, corruption. Migrant workers would be allocated to employers with the best connections, rather than to those who would make best use of them. Thus, the Hong Kong government should modify the direct admission scheme in three ways. First, maintain a single quota of 20,000 workers rather than divide it into sub-quotas of 12,000 for construction, 6,300 for aviation, and 1,700 for public transport. Second, let employers pay any wage migrant workers are willing to accept, provided there are proper working and living conditions. An alarm bell over Hong Kong’s job market Third, allocate the rights to employ migrant workers by auction rather than administrative fiat. Just like emission rights and spectrum auctions across the world, an auction of the rights to employ migrant workers would ensure a smooth allocation of the limited number of such workers to the employers who need them most. The auction should mitigate, at least partly, the effect of migrant workers on the wages and progression of locals. Employers would be forced to pay according to their willingness to hire migrant workers, rather than just the median wage of local workers plus HK$400. This method would ensure that the gains from employing migrant workers accrue to Hong Kong – either to society through bid prices or to employers through additional productivity. In particular, it would cut out facilitators and eliminate opportunities for rent-seeking and corruption. The auction would also reveal how much employers truly need migrant workers. It may be that the construction industry needs these workers more than aviation and public transport. Or the opposite might be true. It is difficult for policymakers to know, but easy for the auction mechanism to reveal. To my knowledge, an auction of the rights to employ migrant workers would be a world first. As such, it could help burnish Hong Kong’s image as a global policy innovator. Ivan Png is Distinguished Professor in the School of Business and Department of Economics at the National University of Singapore. He is the principal investigator of Behavioural Biases at Work, a research project funded by the Social Sciences Research Council, Singapore