TNAG-0735-FCO40-939-Policy-objective-for-the-developing-of-Hong-Kong-in-the-1980-1978 — Page 74

9.

(e) Wage rates, profit margins and export prices

As wage costs represent a large proportion of the

Hong Kong value added content of the gross value of manufacturing

production and determine the share available for profits,

increases in wage rates can be as important as increases in

import prices in determining the competitiveness of our exports, and sometimes even more so, particularly when wage rates else- where are under different influences. Nominal average daily

wage rates (including fringe benefits) for manufacturing workers

were 8% higher in March 1978 than in September 1977 which may

be compared with an average half-yearly increase in the previous

18 months of 5.7%. It is true that wage rates increased by 10.5%

in the six months ending March 1976, but this reflected the

upsurge in demand for our exports as we moved out of recession.

For the half-yearly increase in wage rates to accelerate to 8%

in this mature phase of the upswing and I suspect that in the

six months ending September of this year this rate of increase

will have been sustained can only mean that profit margins

are being squeezed. This is not, in itself, unusual or

necessarily unfair inasmuch as profit margins widened on the

downturn in 1974-75 involving a decline in the relative share

of wages.

10.

Prima facie evidence that profit margins are being squeezed as a result of these wage increases is provided by the

relatively small movements in the unit value index of domestic

exports: in the first eight months of this year the index was 3% higher than in the same period of last year. This shows a slight acceleration compared with the increase of 2% in the whole of 1977 over 1976, but is explained by a strengthening of

demand for exports in 1978 compared with 1977, just as in 1976 export prices increased by 10% as we troughed out of recession and recorded that remarkable 30% increase in domestic exports

in quantity terms.

/11.

Given

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