MPF offset dispute pits job security against flexibility
Labor issues seem to draw less attention now as the local employment market has remained robust in recent years. But the controversial Mandatory Provident Fund offsetting mechanism has proved to be a perpetual annoyance to both employees and employers. Understandably, a proposal to remove this mechanism has triggered heated debate in the past few months.
The rationale behind removing the offsetting mechanism is clear. The mechanism lets employers withdraw cash from employees’ MPF accounts to offset long-service or severance payments they pay to laid-off workers. According to the Mandatory Provident Fund Schemes Authority, HK$3.85 billion was offset by employers in 2016 — equivalent to 94 percent of all employers’ contributions in that year. Moreover, a staggering HK$31.8 billion in employer contributions has been offset since the MPF came into place in 2000. In a nutshell, the offsetting mechanism has significantly eroded workers’ retirement protection.
The previous Hong Kong Special Administrative Region administration led by Leung Chun-ying made great efforts to set a schedule for scrapping the offsetting mechanism. The current administration has been trying to secure employer support for the proposed removal by agreeing to provide at least HK$17.2 billion in subsidies to employers. However, employers are still reluctant. This is because the crux of the issue is not the amount of subsidies but a change in “game rules”: The removal of the offsetting mechanism will increase costs for employers’ downsizing operations and thus undermine operational flexibility.
Controversy surrounding the offsetting mechanism actually has its roots in the dilemma between the employers’ need for operational flexibility and employees’ need for job security. Job insecurity has been one of the most crucial issues and has raised great concern over the past two decades. As economic globalization gains pace and economic crises emerge more frequently, the private sector has been eager to lower labor costs by loosening the employment relationship in the name of operational flexibility. Meanwhile, governments, influenced by neo-liberal ideology, tend to embrace deregulation to facilitate the private sector’s flexible practices. Under such circumstances, workers have resigned themselves to what some academics call the “age of insecurity”. Those vulnerable workers, especially the low-skilled ones, are more likely to suffer from job insecurity. It is not hard to observe that flexibility in the eyes of employers could be insecurity to the workers.
At first glance, Hong Kong’s labor market situation seems satisfactory as the unemployment rate has remained below 4 percent since 2011 — which is considered full employment. However, it should be noted that labor issues are not limited to employment but also have much to do with the situation of workers. The average tenure in Hong Kong dropped from 8.48 years in 1995 to 7.95 in 2004; the decline also reflects rising job insecurity. Moreover, the share of part-time work in total employment rose from 9.7 percent in 2010 to 15.4 percent in 2011 — a 58.8 percent increase. The trend of job flexibility and insecurity is not only witnessed in quantitative data but also in qualitative literature. According to a research conducted by the Hong Kong Federation of Trade Unions, cases of non-standard employment reported by trade unions in different sectors — in the form of parttime work, temporary work or fake self-employment — are on a rising trend in Hong Kong’s labor market. News reports revealing harsh working conditions faced by workers in non-standard employment have been more frequent in recent years.
To strike a balance between job flexibility and job security, some developed countries, notably Organization of Economic Cooperation and Development members, have adopted an innovative strategy known as “flexicurity”. Denmark’s flexicurity is notable in OECD countries. It is well regarded as a successful approach to address the flexibilitysecurity nexus. Generally, flexicurity has three elements: Flexible labor market, a generous system of economic support for the unemployed and active labor market policies aimed at upgrading the skills of the unemployed.
In Denmark, an employment contract is seen as an individual economic agreement between an employer and an employee, which can be terminated at will from both sides. Unemployment benefits are relatively generous in Denmark to protect those suffering from an insecure labor market; job training is also emphasized as a form of employment support.
It is hard to say whether Hong Kong can simply copy Denmark’s welfare regime. However, just as the old idiom says “frozen feet are not a day’s cold”, Denmark’s case shows us labor issues are better resolved by adopting a “flexicurity” concept with a welfare regime rather than conducting endless political lobbying and bargaining.