HT Column City of Commerce: Employing a changing population

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Our city state status has served us in many ways but one: labour. Global centres like New York and London have whole continents of skilled workers able fill valuable roles. Hong Kong’s skilled worker to jobs gap will continue to grow if we don’t act now.

Hong Kong only very rarely has trouble creating jobs. Indeed, changes in the labour force have a greater influence in our month-to-month unemployment rate than do changes in the number of people employed. The fact is that more people are working today (51.4% of the population) than in the past. And, more people are working full-time (50.3%). As the number of jobs grows, we might expect more people to join the labour force, find employment and help Hong Kong to achieve our ambitions. But, there is a limit.

Over the past decade, our population grew by 392,000, the labour force by 311,000 and total employment by more than 436,000. During this time, the number of job vacancies has increased by nearly 15% a year, while the labour force rose just 1%. The number of people available to fill vacancies has fallen from 14 to less than two.

It isn’t unusual to experience a tight labour market during times of strong growth. Nor should it be a cause of great concern, as the market will, in time, sort itself out. Either companies will pay more for the people they need, or they will move to where workers are more readily available, or the market will slow to the point where fewer people are required. One way or another, the problem solves itself.

But, this time is different. Slow growth is not slowing hiring, and that means we need a different approach to addressing the problem.

Over the past five years we have had an average of just 2.6% real GDP growth, and yet the labour market keeps tightening. The last time we faced this dilemma was 1988-90. At that time, the major business chambers jointly produced a report on the matter. Among the recommendations were long-term investment in vocational training and education combined with immediate relief for companies seeking workers not available in Hong Kong.

Government also responded with more flexibility in administering existing labour importation schemes and the short-term problem was alleviated. In particular, labour importation for public works needs helped release local workers for private sector projects. Budgets for education and vocational training were increased as well.

Over the longer term, the response concluded, better education and more funding for vocational training and skills upgrading would ensure that the people of Hong Kong had the wherewithal to fill the jobs available. Over the longer term, we would produce the talent needed to generate the growth rates that would help us meet our aspirations.

The longer term is now

Since that time, the economy has grown an average 4.1% a year and the labour force 1.3% p.a. To put it into perspective, we added 958,600 people to the labour force over the last 25 years while creating 1,058,000 new jobs, a difference of more than 10%.

What we didn’t do was to dramatically improve the education level of new entrants to the workforce, and from the available evidence, we only partially succeeded in generating the skills needed for blue collar jobs. To be sure, the share of employed people who have no more than a primary level education has fallen sharply, from nearly 30% to 10%. And, to our credit, the portion with better than secondary education now represent 34.8% of all employees, up from 14%. Where we didn’t make a significant improvement was in the majority. Twenty-five years ago, the majority of our workforce was educated only to a secondary level, and that is still the case today.

The cost of unfilled jobs

Can we measure the economic cost of unfilled jobs? The task is difficult, and only a partial measure will be attempted here. The calculation is this: divide a sector’s GDP by the number of employees. Next, multiply the output per employee in that sector by the number of job vacancies, again limited to that particular sector. The difference between the two gives us a rough measure of the cost to the economy of not having the right people fill these jobs.

Clearly, the assumption is that each new employee adds exactly the same value as the ‘veterans’ add, which is a stretch. However, because we are not adding in the earnings of these employees, and the purchases they make in the economy that add further to our overall growth, this shouldn’t significantly affect the outcome. It’s a rough estimate, but an educational one.

Here’s what it shows: over the last 10 years, this calculation suggests we have lost nearly 2% of GDP per year because of unfilled jobs. And, the problem has been getting worse, rising from an average of 1.5% in the first five years to 2.2% in the most recent (2008-12) period.

Where is the largest need for staff? Over ten years ago a survey of skills requirements pointed to the rising demand for workers in the wholesale, retail and import/export trade; restaurants and hotels; and financing, insurance, real estate and business services. At the time, those three sectors comprised 44.4% of GDP and 60.7% of employment. The most recent figures are 55.8% and 61.4%.

Certainly, those surveyed in the tourism related sectors were far too cautious. In 2002, we hosted 16.6 million visitors, 41.2% of whom came from other parts of China. Last year, it was 48.6 million and 71.8% from the mainland. Retail sales increased 9.7% per annum over the past decade and two-way trade 8.7% a year. No wonder we have a tight labour market!

Hong Kong is different

Hong Kong has one major structural difference as compared to our key competitors, London and New York. Whereas those cities are able to draw on the best and brightest from a labour pool many times larger than their city populations, we restrict ourselves. All three cities will draw in the best in the world for top-level jobs. But, for the vast majority of work that needs to be done in a global business and financial centre, locally born and educated talent is insufficient. Certainly New York City would not be where it is today if it relied solely on staff from within its city limits.

Moreover, our competitors have workers available who come into the city to work, whether in a stock brokerage or on a construction site, and then leave at the end of the day. For us, commuting beyond Hong Kong involves crossing the boundary and entering into a different society, one with its own legal system, healthcare, education, currency and cost of living.

The challenges we faced and the solutions we identified 25 years ago are still with us today. In the near term, we need more workers. In the medium term, we need to train our existing workforce to fill the jobs available, particularly in the blue collar area. Over the longer term, our education system needs to step up to the aspirations of our society and provide our children with the tools necessary to succeed in 21st century Hong Kong.

Thirty-five years from now, the boundary between Hong Kong and Shenzhen is likely to be just a memory. We will commute further, enjoy lower costs of living because of the ability to spread out and be able to recruit more widely. In other words, we will be more similarly to New York and London. That day is yet to come and we need to address our challenges now.