Unemployment rate drops to lowest since 2009

WASHINGTON (AP) — The unemployment rate, which has refused to budge from the 9 percent neighborhood for two and a half frustrating years, fell sharply in November, driven in part by small businesses that finally see reason to hope and hire.

Economists say there is a long way to go, but they liked what they saw.

The rate fell to 8.6 percent, the lowest since March 2009, two months after President Barack Obama took office. Unemployment passed 9 percent that spring and had stayed there or higher for all but two months since then.

The country added 120,000 jobs in November, the Labor Department said Friday. Private employers added 140,000 jobs, while governments cut 20,000.

The economy has generated 100,000 or more jobs five months in a row — the first time that has happened since April 2006, well before the Great Recession.

"Something good is stirring in the U.S. economy," Ian Shepherdson, an economist at High Frequency Economics, said in a note to clients.

The stock market rallied at the opening bell, after the report came out, but finished flat for the day. It was still up 787 points for the week. The only bigger point gain in a week was in October 2008, when stocks lurched higher and lower during the financial crisis.

The report showed that September and October were stronger months for the job market than first estimated. For four months in a row, the government has revised job growth figures higher for previous months.

September was revised up by 52,000 jobs, for a gain of 210,000. October was revised up by 20,000, for a gain of 100,000.

Unemployment peaked at 10.1 percent in October 2009, four months after the Great Recession ended. It dipped to 8.9 percent last February and 8.8 percent last March but otherwise was at or above 9 percent.

The rate fell not just because people found jobs. About 300,000 people simply gave up looking for work, and were no longer counted as unemployed. People routinely enter and leave the work force, though 300,000 is more than usual.

Obama, who faces a re-election vote in less than a year and a presidential campaign that will turn on the economy, seized on the decline to argue for expanding a cut in the tax that workers pay toward Social Security.

The tax cut affects 160 million Americans. It lowers a worker's Social Security tax by up to $2,136 a year. Someone earning $50,000 a year saves $1,000 with the tax cut. It will expire Dec. 31 unless Congress acts.

Republicans and Democrats have supported an extension but differ on how to pay for it. The Senate on Thursday defeated plans from both parties. Republicans had proposed paying for the cut by freezing the pay of federal workers through 2015. Democrats wanted to raise taxes on people making $1 million or more a year.

"Now is not the time to slam the brakes on the recovery. Right now it's time to step on the gas," Obama said Friday.

Inside the unemployment report, one of the most closely watched indicators of the economy's health, were signs of improvement for small businesses, which employ 500 or fewer people and account for half the jobs in the private sector.

The government uses a survey of mostly large companies and government agencies to determine how many jobs were added or lost each month. It uses a separate survey of households to determine the unemployment rate.

The household survey picks up hiring by companies of all sizes, including small businesses and companies just getting off the ground. It also includes farm workers and the self-employed, who aren't included in the survey of companies.

The household survey has shown an average of 321,000 jobs created per month since July, compared with an average of 13,000 the first seven months of the year.

When the economy is either improving or slipping into recession, many economists say, the household survey does the better job of picking up the shift because it detects small business hiring.

"We might finally be seeing new business creation expand again, which is critical to the sustainability of the recovery," said Diane Swonk, chief economist at Mesirow Financial, a financial services company.

The National Federation of Independent Business, a small business group, said Friday that its own survey of small companies in November found that more of them are planning to add workers than at any time since September 2008, when the financial crisis struck.

LogicBoost, a Washington, D.C., software consulting firm with 19 employees, has hired a sales worker and a marketing worker in the past three months and planned to post an opening for a software engineer Friday.

"Business is going gangbusters," CEO Jonathan Cogley said. "It would be great if the economy were stronger. I think we'd be growing even faster."

Outside Detroit, Grace Dersa opened the Frank Street Bakery this week with her husband. They took the $60,000 gamble after seeing signs that the local economy is improving. They, too, plan to add a worker soon.

"When we go to a restaurant here, there's a 30-minute to two-hour wait. Homes are selling in this area," Dersa said. "People are spending."

Indeed, Americans dropped a record $52.4 billion over the Thanksgiving weekend, according to the National Retail Federation, a trade group. A separate report from MasterCard found spending was up almost 9 percent from last year.

The unemployment report was the latest encouraging indicator for the economy. Other reports this week have shown that factories are producing more, construction is growing, and people are buying more cars.

The accelerating debt crisis in Europe has loomed over the economy for months. An economic collapse there would hammer sales of American exports. And if the crisis caused banks to stop lending money, the world economy would suffer.

But there are signs that Europe is moving toward a solution. Earlier this week, six central banks around the world made it easier for commercial banks overseas to borrow American dollars to do business. The coordinated action calmed financial markets and bought time for politicians to work something out.

The leaders of Germany and France appear to be pushing for stronger rules to make sure European governments are responsible with their budgets, the first step in a strategy to save the euro currency from collapse.

European leaders meet next Friday for a crucial summit on the matter.

In the United States, about 13.3 million people are counted as unemployed.

More than half the jobs added last month were by retailers, restaurants and bars. But professional and business services rose by 33,000, and those tend to be higher-paying jobs, such as engineers and accountants. The category also includes temporary jobs, which increased.

The household survey found that the number of unemployed fell by nearly 600,000 last month. About half found jobs, while the other half stopped looking for work. The decline of 600,000 is the biggest since January.

The so-called underemployment rate fell to 15.6 percent from 16.2 percent. That includes three groups: people who are unemployed and looking for work, people who are unemployed and have stopped looking, and people who are working part-time but would rather be working full-time.

But even with the recent gains, the economy isn't close to replacing the jobs lost in the recession. Employers began shedding workers in February 2008 and cut nearly 8.7 million jobs over the next 25 months. The economy has regained about 2.5 million.

And many people aren't getting raises. Average hourly pay slipped 2 cents last month to $23.18. In the past year, wages have risen 1.8 percent, but inflation has risen twice as fast, eroding buying power.

Obama may face voters next fall with the highest unemployment of a sitting president seeking election since World War II. Gerald Ford faced 7.8 percent unemployment when he lost to Jimmy Carter in 1976. Ronald Reagan faced 7.2 percent unemployment in 1984 and trounced Walter Mondale. Unemployment was 7.8 percent when Obama took office in January 2009.

The economy grew at a 2 percent annual rate in July, August and September. Paul Ashworth, an economist at Capital Economics, estimates growth will speed up to 2.5 percent in the last three months of the year, but slow to 1.5 percent in 2012. Ashworth's estimate assumes a recession in Europe, but not a nightmarish collapse of the euro.

___

AP Economics Writer Paul Wiseman contributed to this report.

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INTRODUCTION TO SOCIAL SECURITY

INTRODUCTION TO SOCIAL SECURITY

In order to address the routine concerns of many regarding the payment of bills, post-retirement, or disability, a federal benefits program was designed in the United States in 1935, known as the Social Securities Act. The program known as the Social Security program, provides disability, retirement, unemployment, and survivor benefits, as well as Medicare. The benefits offered, aim at providing financial support to the citizens of the U.S. who fall under the categories specified within the parameters of the program.

The Social Security Act of 1935, introduced the Social Security system in the U. S. The system caters to the financial needs of the retired citizens who have contributed to the Social Security trust fund for at least 10 years. It also provides benefits to the survivors, in the event of the employee's death. The other benefits offered, cover disability and unemployment.

It is essential for the person to make the regular required contribution to the Social Security Trust Funds through the payroll taxes, to be eligible. By virtue of the provisions of the Federal Insurance Contributions Act or FICA, every worker's income is subject to a tax payment of 12.4% on the first $94,200 earned during the year (this may have been raised, or it may be raised in the future). Half of this amount or 6.2% is paid by the employer, while the other 6.2% is deducted from the salary of the employee. The amount is given to the government. Self-employed people are responsible for paying the full 12.4%. This amount is used to fund the Social Security system.

The system has been designed to benefit those who make the necessary contributions for a period of ten years. There is a credit system incorporated in the scheme, and you can earn a maximum of four credits per year. This means that regardless of the higher limit of your actual earnings, and consequently the quantity of your contribution to the fund, your earnings would entitle you to receive four credits.

The amount of the monthly Social Security check that you would receive after retirement, would be calculated on the basis of your 35 highest income-generating years. You need to apply, to start receiving your Social Security benefits. The best time to do this would be a few months before your actual retirement date. It is not sent automatically, as some people believe!

The Social Security program attempts to pay the retired citizens a pre-determined sum of money, to cover their basic needs. It works as a kind of insurance for the retired people, helping them to cope with financial difficulties and post-retirement.

It is a form of insurance that covers the surviving spouse and children, in case of the employee's death. If the spouse is between 62 to 65 years, 70 to 99 percent of the benefits are payable (this may have changed, too, or it may change in the future). Dependent parents and unmarried children under 18 years are entitled to receive the benefits, too.

Disability that prevents employment opportunity, is also considered for benefits under the Social Security system. Physical and mental disabilities are also covered, and the payment starts five months after proving the disability to the authorities. Because of past abuses to the system, Disability Benefits are harder to receive and get approved now, unfortunately. Many people have to hire an experienced attorney to get them through this paperwork and bureaucratic process.

Under the Social Security system, unemployment benefits are available to those whose unemployment is due to circumstances beyond their control. The program is designed to provide financial relief to the citizens of the U. S. at crucial times.

To get the latest details, you might want to search the Internet or contact the Social Security System directly. Congress is continually looking at this important program; and unfortunately, it has become a “political football,” with both political parties making media statements that Social Security is broke and “needs fixing.” This has been going on for most of the time that Social Security has been established, and it will probably continue to go on in the future, when your children, grandchildren, and great-grandchildren are grown! To get the REAL and TRUE facts, disregard most of these media statements by politicians (even the President, who recently declared that there would BE NO SOCIAL SECURITY CHECKS IN AUGUST), and get the facts directly from the Social Security System itself! This is a very unfortunate situation, and it has continued to worry many Senior Citizens, some of whom have had strokes and heart attacks because of this worry about their lack of control over their own finances! Congress and the President should be more responsible than this!

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Copyright 2011 by Preston Smith,
Silver Dollar Press,
a Division of Walker Enterprises.

All Rights Reserved.

The Unemployment Rate in Asia

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.

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