16 August 2002

ECONOMIC REVIVAL IS THE KEY TO UNEMPLOYMENT REDUCTION

Hong Kong's GDP growth must first absorb the underlying increase in the labour force and productivity before it can effectively reduce unemployment, according to the latest issue of the Hang Seng Economic Monthly.

If the labour force and productivity were each to grow by an average annual 1.5% as during the past two decades, real GDP growth should be at least 3% per annum to prevent unemployment from rising, the report states. Although probably a short-term challenge, achieving long-term real GDP growth of 3% is not an unrealistic target, given Hong Kong's brisk growth of 7.2% in the 1980s and 5% in the 1990s before the onset of the Asian financial crisis. The near-term reality, however, is that the territory might have to prepare for several years of high unemployment before the current economic adjustment has run its course. The number of jobless increased at an average rate of 9,300 a month from the second quarter of 2001 to reach a record 264,000, or 7.7%, in the second quarter of 2002. Total employment remained unchanged at approximately 3.22 million between the last quarter of 1997 and the first quarter of 2002, while the labour force grew by 163,000 persons, or an annual rate of 1.6%, between 1997 and 2001. Skills mismatch in the labour market has lent credence to the argument of structural unemployment. For instance, the unemployment rate for the 15-19 age group rose to 27.2% in the first quarter of this year, indicating lack of suitable vacancies for unskilled youths. The sluggish economy over the past five years is another factor contributing to the rising unemployment. Corporations have focused on enhancing productivity rather than adding staff to cope with new business demands, if any, in the economic downturn. The government's ability to create jobs is limited and is unlikely to have any lasting effect without sustained economic growth, according to the report. Concerted efforts are required from every sector to restore Hong Kong's economic dynamics and generate faster growth so that new jobs are created, the report states. The need for economic adjustments and the current economic difficulties have not weakened Hong Kong's comparative advantages as a key business and financial centre for mainland China and the Asia-Pacific region. The key lies in further enhancing Hong Kong's exports of services, which are the principal driver for the territory's sustainable growth and the critical factor in pulling Hong Kong out of the current economic doldrums, the report states. In order to do that, Hong Kong must firstly ensure that it continues to play a critical role in the rapid economic growth of the Pearl River Delta area by providing the essential business and financial services to enterprises in both the territory and South China. It must also become a place where people and funds meet, and where goods transit so as to sell its services. Smoothing the flows of people and funds into the territory is the key to strengthening demand for Hong Kong's services and to adding momentum to the economy. Any measures attempting to slow down labour force growth, such as cutting immigration and encouraging the outflow of unemployed workers would only provide short-term relief but would impede long-term economic growth, the report states. Recently launched programmes, such as the Youth Work Experience and Training Scheme and the One Company One Job Campaign, help prepare young school-leavers and graduates lacking work experience to face future challenges. Improving productivity is the base for sustainable economic growth over the long term, and the availability of a pool of suitably-qualified human resources is fundamental to raising productivity. As such, equipping the future workforce is probably the best means of restoring the equilibrium of the labour market over time, the report states.