No jobs lost after first month of minimum wage laws: HSBC

Although it's still too early to conclude Hong Kong's new minimum wage a success, fears of job losses did not materialize in the first month of the legislation's implementation. Not only did May see a faster inflow of workers into the work force, but it also maintained a similarly robust pace of job creation seen since the end of the Lunar New Year. Employers are still hiring on the back of strong business demand, helping to buffer lower income households against the impact of higher inflation.

Facts
Hong Kong's unemployment (seasonally adjusted) rate held steady at 3.5% for the three months to May 2011, in line with market and just a touch above our expectations (Bbg: 3.5%; HSBC: 3.4%).

Total employment rose too, by 15k to over 3.6mn in the same period. Though less than the 16k of jobs created in the previous period, 15k is still more than double the monthly average of 7k new jobs created in 2010. Moreover, seasonally adjusted, employment has been expanding consistently for a year.

Although employment expanded, the unemployment rate failed to ease due to an bigger rise in the labour force, by 17.8k to 3.74mn. For similar reasons, the underemployment rate stayed frozen at 1.9%.

Reflecting the sustained underlying strength of HK's labour market private sector vacancies posted by the Labour Department increased 12.3% on the month and 7.9% on the year. Moreover, the number of successful placements rose 4.6%m-o-m and 13.5%y-o-y.

Implications
With an influx of high school leavers and fresh university graduates set to enter the workforce from June onwards, the expansion of Hong Kong's labour force will likely continue to expand at a faster pace than the pace of job creation, limiting the room for further downward movement in the unemployment rate.

That said, it's still possible for jobs to be created at a fast enough pace to absorb all new grads entering the work force, as occurred last summer.

Labour market conditions and wage increases continue in May despite the cost impact of a newly enacted minimum wage, shoring underscoring our buoyant outlook for retail sales, private consumer spending and GDP growth this year. So long as business demand stays strong and businesses continue to hire, the positive income boost received by lower earning households (who are earning more but not losing their jobs) should help mitigate against the erosion of household purchasing power by escalating inflationary pressures.

Bottom-line: Businesses are still growing and employers still hiring in Hong Kong, countering fears of potential job losses triggered by the new minimum wage legislation, which kicked into effect on 1 May. Given the continued resilience of Hong Kong's domestic economy, we still expect the unemployment rate to end the year between 3 to 3.5%, subject to some month to month volatility.