The Unemployment Rate in Asia
The unemployment rate became a hot topic in the past few months when it rose to 3.5 per cent, a recent high for almost 10 years. The jobless rate was higher than the 3.2 per cent unemployment rate recorded in the May to July period. The underemployment rate in the June to August period rose to 2.5 per cent from 2.3 per cent in the May to July period. Until recently, most workers who lost their jobs were from the manufacturing sector. They were middle-aged factory workers with few skills and little education. But in recent months a large number of employees have been laid off in the retail and restaurant businesses. Unemployment has spilled over to the service sector from the manufacturing sector.
Hong Kong is facing a prolonged economic downturn. The high unemployment rate has raised many social and economic problems. For example, the number of people who commit suicide has increased. It is because more people lost their jobs for a long time. It is a serious threat to the lives of the poor. The unemployed people may also feel that there is no reason to live. As a result, they will commit suicide to solve the problem. Moreover, the high unemployment rate results in the increase of the rate of crime. There was an unemployed man who stole rice because he was too hungry, and he did not have money to even buy food! We can know how serious the unemployment rate is by the way the higher unemployment rate causes lower purchasing power of people. All kinds of business are affected. Many people lose confidence in the economics of Hong Kong. They do not believe unemployment will be improved. Some say that the government should provide immediate assistance for the jobless. Some also say unemployment is due to the attraction of cheap labor across the border. The government can no longer play the role of a bystander.
All of these show the influence of the unemployment situation. In spite of many people talking about unemployment, everyone will be concerned about this topic. The following sections will analyze this hot topic.
Reasons for unemployment in Hong Kong
1. Faster growth in total labor supply relative to that of total employment
In 1993 and 1994, the increase in the Hong Kong labor force was 2.9% and 3.5% respectively. At the end of 1993, their total labor supply was 2,970,000. Change in the total labor supply was determined by the population growth, total employment, and the emigration condition. If the population growth and the total employment is stable, the extra labor supply will increase the total labor supply. This extra labor supply came mostly from the influx of illegal immigrants from China, imported labor ( 30,000 ), hiring of expatriates ( net increase of 40,000 from 1992 to 1994 ) and the returnees from overseas. Thus, the supply of labor is greater than the demand, and causes pressure on employment.
From March to May of 1995, the total labor supply had risen 4.4%, but the total employment had just increased 3.6%, so this aggravated the unemployment rate. However, this is just a superficial reason. The following reasons can explain the reason of unemployment in a deeper way.
2. Change in the economic structure
The economic structure in Hong Kong has changed from labor intensive to high technology and large capital intensive. Also, it changes from manufacturing oriented to service oriented industries. Therefore, the factories move to China for cheap labor. From 1988 to 1994, there were 60,000 jobs lost each year. Of the total employment of different sectors, the portion of the manufacturing industries dropped from 27.4% in 1990 to 17% in 1994. Many laborers are released from the manufacturing industries. Though there was a great demand for labor in the service sector, many of the unemployed still could not find their job because of job matching problems. They did not have the skills demanded in the job market, so there were both a lot of vacancies of jobs and a lot of unemployed laborers. This kind of unemployment is called structural unemployment, which is a kind of involuntary unemployment.
3. China Policy
Recently, the Chinese government tried to control the economy by macro policy, such as implementing the monetary policy and inflation control policy. This lead to a slowdown in the Chinese economy as well as the flow of Chinese capital to Hong Kong for speculation and investment. This affected Hong Kong's economic growth simultaneously.
In the past, the prosperous China-Hong Kong trade motivated the purchasing power in the service sector of Hong Kong. However, there have been some changes in the investment environment in China recently. First, it is the high inflation rate. For the past two years, the inflation rate was about 20%. Under the macro policy, the recent figure is 18.5%, which is still quite high. Second, the government began to raise the property tax. With these two factors, the profitability of investing in China decreased. Therefore, the purchasing power of Hong Kong's service sector was directly affected, and so many laborers were being dismissed.
4. High rent and high inflation rate
8 years of continuously high rent and the high inflation rate make the production cost of the Hong Kong enterprises, especially the labor cost , increase tremendously. On one hand, this encourages the enterprises to move their labor-intensive industries to other place where the labor cost is cheaper. On the other hand, these enterprises try to dismiss labor or reduce the engagement of their work force. Many change to the use of more capital and technology to reduce their production costs, as well as increase standardization and productivity. Many enterprises could not stand the high rent, and closed down, such as the Japanese department store, Mitsubishi. A lot of laborers were then released and became unemployed.
5. Non-intervention government policy
The Hong Kong government lacks long term planning in their economy. They just try to adopt a non-intervention policy to their economic problems. In fact, in the 1980s, the economic structure was changing. The manufacturing industries were declining. However, the government did nothing to help.
The government, for a long time, ignored the research and development of the high technology application. Thus Hong Kong's industrial technology cannot catch up with the other three dragons. This explains why the productivity of the Hong Kong people has been reduced recently. In 1990-1994, the productivity of Hong Kong labor was 3.8%, but Taiwan and South Korea had 4.8%, and Singapore was 4.5%. From this, we can see that the competitive power of the Hong Kong industries was weakening, and high unemployment is inevitable.
Government carried out a high land policy, which lead to a tremendous rise in the property price, so the rent of the shops and factories increased. The widespread implementation of the sewage treatment charges also increased the production cost. This is a reason why the factories moved to the north or closed down.
6. Labor importation scheme
Is it the main reason responsible for the rising unemployment rate in Hong Kong?
a) The viewpoint of the government
Economist Tang Kwong-yiu said that the labor importation scheme is not the main responsible for the rising unemployment rate in Hong Kong. He attributed it to the faster growth in the total labor supply relative to that of total employment. Students looking for summer jobs have aggravated the unemployment problem during the last three months. The influx of illegal immigrants from China, the return of overseas Chinese and the hiring of expatriates also aggravated the job shortage. However, Mr. Patten proposed replacing the Labor Importation Scheme with a Supplementary Labor Scheme that would aim to cut the number of imported workers from 25,000 to 5,000 from January.
b) The viewpoint of the Democratic Party
Though the labor importation scheme is not the main reason, it's implementation aggravated the unemployment problem. They believe that the change in the economic structure is the main reason. The problem became obvious in the mid 80's as many factories moved to the north. However, the government did not intervene. They still wanted a termination of the scheme so that the problem can at least be lessened.
c) The viewpoint of the labor union
They believe that this scheme should be stopped at once. They were disappointed by the Governor's failure to scrap the imported labor scheme for the new airport project. Construction workers would continue to see their jobs being taken by foreign laborers. Unionist Lee-Cheuk-yan said that in Hong Kong, they don't need any imported labor, not even 5,000.
d) The viewpoint of the economists
i) Mr. Lui from the Economic Development Research Center says research has been done, and the result is that the change in the economic structure contributed 60% to the rising unemployment rate. The labor importation scheme is just a minor factor, and the influence to the labor market is not significant. The scheme was not just carried out in Hong Kong, but also in the USA and Germany. We cannot see that imported labor has significant influence on the unemployment rate. This is because imported labor takes away the job of the local laborer, while at the same time, they create job opportunities for themselves. If the company uses imported labor, the production cost can be reduced. This will keep the enterprises from moving to other places, or even will attract more investors to Hong Kong. This will benefit the local labor market.
ii) Mr. Wong from the Management Department of Lingnam College does not agree with the research of Mr. Lui. He believes that, though the importation scheme is not the main reason, it is the root of the sin. The influence that it brings to the economy is not insignificant. What's wrong with this scheme is that the government officials ignore the opinion of the public, and make this scheme a long-term policy. The imported labor are widely employed in all kinds of jobs, so the government has not considered the employment problem of the labor released out from the declining manufacturing industries.
Despite the effect of the labor importation scheme, this economic argument has changed to a political issue, making it difficult for a political party to gain votes in the election. They all try to bargain with the government officials and propose bills to debate in the Legislative Council for a termination of the scheme.
In previous parts, we have explored the reasons of high unemployment rate; now we will begin to describe the situation of Hong Kong's unemployment. It includes a description about the current unemployment situation and the changes in the unemployment rate in the past 10 years, as well as the underemployment rate. We will also analyze the change in the labor force.
The unemployment rate in specific sectors will be analyzed, so that it can help to study the structural change in the unemployment rate. The reasons for the structural change will also be analyzed.
A. Unemployment, Underemployment, and duration of unemployment
1. Unemployment in HK
The recent unemployment figure in the 2nd quarter of 1995 was 3.2%. It was the highest figure in nine years. Many people, as well as the government, have noticed this significant increase in the unemployment rate. It must be concluded that unemployment in HK changed from short-term to long-term. The unemployment in 1989 was 1.2%, it gradually jumped to 3.2% in 1995, with a continuous increase year to year, but no decrease in this 7-year period. Before, the problem of the higher unemployment rate only extended from 2 to 3 years. This shows how the unemployment changed from short to long term.
2. Underemployment in HK
When a person who works for pay less than 35 hours in a month, he is said to be under-employed. In the 2nd quarter of 1995, the underemployment rate reached 2.1%. There were about 589,000 people who were under-employed.
3. Duration of unemployment
In 1994, there were 21,000 persons unemployed for more than 3 months; it contributed 26.2% of the total number of unemployed workers. The figure jumped to 31,000 in 1995, the contribution also increased to 31%.
Before, they were temporarily unemployed, but they can soon find a new job within a short period. But now, they have to face a permanent problem of losing their job.
B. Structural change in unemployment
According to the statistical data, the nature of the unemployment rate changed very much. Before, labor in the manufacturing sector suffered most from the economic slowdown and the change in economic structure. However, the retail and service sector also faced this problem. The unemployment problem extended from the manufacturing sector to nearly all industries in HK.
1. Manufacturing sector
In 1987, the manufacturing sector employed about 800,000 workers, but it gradually dropped to 395,000. There was an average decrease of 50,000 to 60,000 persons employed.
The unemployment rate in the manufacturing industry increased from 43.9% in 1989 to 53.6% in 1994. There are several reasons explaining the increase. First, owing to the economic slowdown and structural change, the manufacturing industry was badly affected, and many firms were closed. To save costs, the factories moved their production line to mainland China to take advantage of cheap labor. It left many local workers unemployed. In addition, the workers in the manufacturing industry have low skills, and they are incapable of finding other jobs requiring special skills. Another reason factor, which is controversial, is the importation of labor. Because their wages are lower, local workers are replaced, because the manufacturers want to save money. As a result, unemployment become more serious in this sector.
2. Retailing sector
Local retail industry prospered from the 1980s, due to economic growth and the full confidence of investors making investment in HK or in China. But in recent years, the retail industry also suffered a slowdown.
According to statistical data, the retail industry had an average 1.9% growth in sales volume. However, in April 1995, the figure decreased by 2% compared with the same period in the previous year. Also, the unemployment rate in this sector increased.
In the first quarter in 1995, the total unemployment in the retail industry contributed 30% of the economy's total, which is the second highest share, while the largest share is the manufacturing industry.
3. Service industry
The service industry continuously grew in the 1980s and early 1990s. Many people were employed in this sector. However, it also suffered from the economic decline in later years. The service sector includes the hotel service, transportation service, food and beverage, financial and asset management, and so forth.
In the service sector, there were about 15,000 people unemployed in 1995, which represented a 21% increase compared with the previous year. It is higher than the total unemployment figure in the manufacturing industry.
The reasons are basically the same, in explaining the high unemployment rate in both the retailing and service industries. The economic slowdown led to reduced investment and consumption of goods and services. Economic decline in China also reduced investment projects in the Mainland, thus demanding less service.
With a high inflation rate, people are more sensitive to the way they spend money. Now, they spend less on buying goods and consuming services which are unnecessary. Therefore, large service corporations, such as HK Telecom, began to cut the labor force to fit with the demand.
More importantly, the service industry started to operate in Mainland China. The decline in the service industry cannot absorb the large labor force, especially workers who leave from the manufacturing industry.
4. Construction industry
The unemployment rate in this sector is lower when compared with the manufacturing, service, and the retailing industries. In 1995, the unemployment rate in construction decreased, but the underemployment rate increased. There are some large projects that led to a greater labor supply in the construction sites. For example, the New Airport project demanded many skilled construction laborers. On the other hand, the demand of lower-skilled construction workers decreased because of the decline in the estate market.
The large construction projects are often technology oriented, and the machines and equipment is more difficult to manipulate. So, unemployed construction workers from the estate market cannot transfer to the large project because they are not qualified to operate the high-tech machines. Therefore, some vacancies are unfilled by the low-skilled workers. Unemployment in this sector remains unsolved.
C. Vacancies by different sectors in HK economy
It is arguable that the unemployment in HK is not so serious, because there are still many vacancies . However, the problem is that the unemployed workers cannot find the job that fits them, or they refuse to accept a lower wage. On the other hand, employers may not employ workers of lower skills. So, there is a situation that the demand and supply of labor skill is not matched.
D. Relationship Between Unemployment Rate and Inflation Rate
A general belief tells that there is a negative relationship between the unemployment rate and the inflation rate. Some economists claim that the contemporary economic situation in Hong Kong, high unemployment rate associated with a relatively low inflation rate, is a predictable result from periodic adjustment of the built-in economic mechanism. Since 1987, the high inflation rate had pushed the costs of production and operation up to a very high level. Therefore, people suffered from a reduction of purchasing power and negative wealth. Meanwhile, people tend to save more because of their fear of the instability arising from the transition of sovereignty in 1997. On the other hand, policy-makers tried to release the high inflation rate by means of imposing a higher interest rate. The general price level began to fall after a continuous increase for eight years.
Inflation rate & Unemployment rate in HK, 85-95
The high unemployment rate is caused by many factors, like change in economic structure, importation of foreign labor, which will eventually lead to a negative wealth effect, and a reduction in the general consumption level. The low inflation rate is traded off by a high unemployment rate. On the other hand, the serious unemployment rate demonstrates that the economy moved from an economic boom period to a slump which was accompanied by a low inflation rate.
Implication - Cost of Unemployment
Unemployment is costly to society. It affects Hong Kong's economy directly and indirectly. There is a loss of real output in the economy. When the economy does not generate enough jobs to employ all those who are willing to work, a valuable resource is lost. Potential goods and services that might have been enjoyed by consumers are lost forever. This is the real economic cost of high unemployment. Unemployment leads to the decline of purchasing power, and negative wealth results. According to the Keynesian Consumption Theory, current consumption depends on current income. The permanent income hypothesis also emphasizes how the future affects consumption today by pointing out that people save in good years to carry them through bad years. Changes in consumption will be affected by changes in wealth. As a whole, consumption decreases under the negative wealth effect. The level of consumption and investment gradually declines in sectors such as the service industry, the retailing industry, the food industry, and the manufacturing industry. Some industries may even shut down. Employees lose their jobs as well. This becomes a spiral effect in the economy. The costs of unemployment should also include the searching costs for new jobs. In Hong Kong, there is a problem of frictional unemployment. People leave jobs for all sorts of reasons, and they take time to find new jobs. Inevitably there is a pool of people who are “frictionally" unemployed while in the course of finding new jobs. But in attempting to find a job (at the most favorable wage rate), the worker incurs search costs in terms of extra time, effort, and wages. The wise worker will weigh the gain from the extra search against it’s costs. If some workers found that it is difficult to find a new job, they may accept lower wages offered by the employers in order to save the search cost. There may be a trend that the wage rate gradually decreases and the negative wealth effect still appears. Also, when there is unemployment, there is a loss of accumulated work experience, an invaluable asset to the economy. Depreciation of human capital results. This is the social cost of unemployment.
Moreover, high unemployment leads to a higher incidence of psychological disorders, divorces, suicides, mental anxiety, and ill health. People's self-respect and their health are harmed as a result of unemployment.
Furthermore, the private cost of unemployment for an individual may be greatly reduced if we consider the value of leisure (or of not working), and if unemployment benefits are offered by the government.
Finally, unemployment is not only an economic aspect, it also becomes a political conflict. As we know, conflicts are found between two sides. On the side of the general public, labor unions and democratic parties, the influx of a foreign labor force is the main reason for unemployment. They urgently ask the government to restrict their entrance. On the side of the Hong Kong government, the enterprises and the capitalist, it is not the main reason. Unemployment is mainly caused by the structural change of the economy. However, the request and discontent of the public forced the government to make a concession. That is to make regulations to restrict the influx of foreign workers.
Solution
Finding ways to solve the unemployment problem is of the utmost importance now. Since the supply of labor is so much greater than the amount demanded, one way is to let the market mechanism determine the relationship between the labor supply and the labor demand. The government can also implement some new plans to help lower the high unemployment rate. Here are some suggested solutions:
1) Correct the Hong Kong people's attitude on “full employment," to let them realize that Hong Kong's unemployment level will be at a rather stable rate of 3-4% these few years. So, by maintaining the unemployment rate at 2-3%, it can help to control the increase in labor cost as well as the stability of the Hong Kong economy.
2) The high unemployment rate of Hong Kong is partly attributed to the increased number of imported laborers. Therefore, the simplest way is to reduce the number of imported laborers. The government should adjust the necessary number of imported laborers so that it can match with that of the market labor demand. Actually, the increase in the number of imported laborers is due to their willingness to accept lower wages than local workers. Workers are not always passive; they should voice their opinions and fight for their own rights, like strengthening the power of the labor unions, and not just relying on the government for implementing new policies to combat unemployment.
3) The government could lower the requirements for applying the unemployment allowance to help workers solve their problem. However, the workers should not just wait for help from the government. They should actively seek jobs, and can show their discontent to the government for unfair treatment. Some companies also employ illegal workers. The government can also implement new laws, such as that in the United Kingdom, so that it will be a criminal offense if the employers employ illegal workers. This can help to deter them from hiring those illegal workers.
4) Increasing investment and production capacity can also be a solution. The government can do this by increasing its expense and decreasing the profit tax rate so as to raise investment interest in the local industry. If there is an increase in investment, there will be more employment opportunities, increasing both the supply and demand. Increasing government spending can stimulate aggregate demand and hence decrease the unemployment rate. By doing these, it can also strengthen Hong Kong's competitiveness with other Asian countries.
5) It is important for the government to manage the increase in labor costs, as well as increase employment and labor productivity. There should be strategies to maintain economic growth at a steady rate, to control labor and labor costs from growing too fast, and to prevent the increase in the inflation rate due to economic growth. People do not possess the necessary skills needed to perform some specific tasks.
Copyright 2011 by Preston Smith, Walker Enterprises/Silver Dollar Press. All Rights Reserved.
Here’s a good website to check out: “Studio Quality Portraits For Less” - http://studio-quality-portraits-for-less.weblodge.net
Here’s another good website to check out: “Green Cleaning Products” - http://green-cleaning-products.weblodge.net
Here’s another good website to check out: “How To Adjust & Repair Your Sewing Machine” - http://www.silver-dollar.zoomshare.com
Here’s a good Forum to check out: http://dachshund-forum.forumotion.com
