The steady rise in the unemployment rate in Hong Kong is no surprise given the general state of the global economy. In the normal course of events, one would expect economic activity and job creation in the SAR to pick up in due course once the world's major economies recover. But the latest figures give cause for concern that even with a recovery, unemployment might not return to the low levels of previous years. There are now more than 200,000 people out of work, even though the size of the workforce has shrunk marginally during the second half of this year. The Census and Statistics Department reported that jobs were lost in almost every major sector of the economy, but that construction, manufacturing, distribution, transport and financial services were the worst hit. The question is whether the kind of jobs that become available when the economy recovers will be the kind of jobs that those who are now unemployed will be willing and able to perform. The danger is that there will be a mismatch between the kinds of jobs that will be available in the future, and the skills of the workforce. In other words, the current bout of unemployment is not merely cyclical, but structural as well. Hong Kong has been through this process before, as its manufacturing industries moved across the border to take advantage of cheaper labour costs. The same process is now at work in the services industry, as low-end jobs in banking and other areas move north. The Government is encouraging people to retrain and upgrade their skills, but there is a limit to how far this process can go. It is likely that Hong Kong will have to live with higher unemployment rates than it has been used to, as the territory's economy evolves. The challenge for the Government will be to find a way to cope with the inevitable political and social distress this will cause.