Rare is the recession that does not bring rising unemployment. Hong Kong seems set to register negative growth by the year end, and news that the jobless rate for the August-October period rose to 5.5 per cent confirmed the bad outlook.
With a weak international environment and anemic domestic consumption there are few bright spots. The trading outlook is poor and down-sizing by financial and professional services firms may increase. As a small, open economy there is little that can be done about harsh cyclical economic forces.
Compared to many other regional economies Hong Kong is performing relatively well. Job losses have been a drip-drip affair rather than wholesale closures such as those hitting centres like Singapore. While the last quarter saw 9,000 job losses the number of people in work is close to a record high.
The longer-term problem is a failure to create sufficient jobs to match mainland immigration and the greater proportion of the local population seeking work. Retraining initiatives are a sensible response but higher value-added services must be developed if the structural jobless rate is to be reduced and sustainable increases in income are to be achieved.
There can be no quick fixes. Unless Hong Kong wants to follow Japan's example, simply increasing public works that are not warranted on economic grounds will only defer problems. The hard reality is that Hong Kong attracts the wrong kind of immigrants while providing few incentives for low-skilled workers to relocate across the border. The rigid public housing system restricts labour mobility across the SAR with travel costs providing disincentives to low-paying jobs.
Unemployment is a 'lagging indicator' that usually rises even after a recovery has started. This cycle is unlikely to be different and the whole economy faces belt-tightening. Without the ability to directly boost growth the Government should focus on education and training initiatives and measures to increase labour market flexibility.
