Hong Kong’s response to changing demographics: The force yet awakened

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The solution to a shrinking labour force exists within the local population. A comprehensive policy to unleash the potential manpower is urgently needed.

(Photo credit: Chris Lusher)

It’s been nearly 15 years since Hong Kong pledged to implement the Madrid International Plan of Action on Ageing recommendations for social and economic development policies. A lot has been done since, but now that the narrow window of opportunity is coming to a close, it is clear that the response is lagging behind.

Per government population projections, one in three people are expected to be 65 or above by 2041 and will continue to age at a faster rate each year. Compounded with a declining birth rate, the population below the age of 65 is expected to contract. These forecasted demographic changes will have dire effects on traditional social and economic structures as the dependency ratio is expected to worsen from 4.7 working age persons in 2014 to 1.8 in 2041. Without an immediate reform of the current system, the next generation of taxpayers will be forced to carry the heavy economic burden of inaction.

A shrinking workforce and declining economic growth

With an ageing population and declining fertility rate, labour force participation (LFP) is expected to decrease from 58.8% in 2012 down to 49.5% in 2041 with the decline projected to begin in 2018.  In the last 20 years, the economy has grown by an average of 4%, 1% of which was due to growth in the labour force. A contraction in LFP will make this growth trend unsustainable. Revenue growth from income tax is also expected to take a hit as more of the population leaves the workforce.

There are currently 1.6 million economically inactive people of working age (15-64) in Hong Kong and their potential is hampered by the many barriers inflicted by a dysfunctional system. Within this demographic, there are youth, mothers, and minorities that would be more than able to join the workforce if presented with the right working conditions and policy environment. An extended demographic belongs to the retirees that are over 65, still capable of contributing to Hong Kong’s workforce, yet being consistently hampered by societal constraints. 

Although the unemployment rate was recorded at a low 3.5% in 2012, youth aged 15 to 24 face the highest level of unemployment, at 9.7%, than any other working-age. Ironically enough, several industries (such as construction, healthcare, elderly care services, entertainment, etc.) have experienced severe shortages in manpower. In part, this reflects a skills-mismatching problem created and reinforced by a cultural belief that tertiary education is supreme and the government’s inability to effectively manage anticipated labour market needs. Unfortunately, it will only get worse as retirement age increases and part-time retirees return to the workforce. This leads to untapped labour potential, impediments to upward mobility, and feelings of alienation from the economy’s most important cohort.  

Women of child-bearing age is another group that is being neglected with 83.8% of the economically inactive female population aged 30 to 59 being homemakers. Fertility rates and LFP of this specific group are on the decline mainly due to the city’s incompatibility with raising a family. For many women in Hong Kong, raising a family and working full-time are mutually exclusive concepts. Fostering family-friendly workplaces, shortening hours of work, providing better access to childcare, extending maternity/paternity leaves, offering part-time work with benefits and providing incentive for companies to reduce gender-based discrimination, are just a few initiatives that would significantly reduce the stress on families and enable more members of society to join the workforce. Unfortunately, the government is not seeing this cohort as a priority. In the government’s Steering Committee on Population Policy (SCPP) 2014 Public Engagement Exercise on population policy, the document mentioned “the SCPP considers that a more supportive environment for forming and raising families should be explored.” And that it should be balanced against “more pressing spending priorities due to ageing population, and the need to maintain a low tax regime.” The government doesn’t seem to understand the intrinsic link between the high percentage of economically inactive women and the current system’s discordant environment for “forming and raising families.”

More should be done to maximise quality labour participation from immigrants and minorities, and one-way permit arrivals as well. The lack of appropriate language-training for second-language learners and the unnecessarily strenuous language requirements in the hiring process negatively impact the prospects for new arrivals and minorities to be integrated and contribute to the society, and to benefit from upward mobility.

With life expectancy on the rise, people are staying healthier longer. Unfortunately, retirement systems have yet to fully adapt to the demographic change. Hong Kong is losing capable workers because of inflexibility. Although retirement ages have been relaxed in the public sector, the private sector is still free to set their own limits, in some cases as low as 55. With the government’s inability to direct an awareness campaign years ago, today’s 65 and above, younger generations, and the private sector are not socially or financially prepared to deal with the new demographic reality.

The window of opportunity, is now nothing more than a crack. In light of the labour crisis Hong Kong is facing, policy planners and government need to pay more attention to specific groups within the population. The time has passed for incremental changes and lengthy discussions. If Hong Kong wants to remain a competitive global economy, it must act now.

[starbox desc=”Shahnaz Mouhamou