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Labour Department notified  of record 2,500 jobs a day

Hong Kong could reach full employment this year for the first time since the handover, the government's internal estimates show.

Unemployment fell to an eight-year low of 4.3 per cent last month, and senior government sources say the 'natural' rate of unemployment is now 3.9 per cent, meaning the target of full employment is just 0.4 percentage points away.

If economic growth this year reaches the top end of government forecasts, the number of new jobs created is predicted to exceed new entrants to the workforce, bringing unemployment down, the sources say.

The signs are already promising, with Permanent Secretary for Economic Development and Labour Matthew Cheung Kin-chung  saying the Labour Department was notified of an average of more than 2,500 vacancies a day - a record.

'Our rough estimate shows total employment will grow by 1 per cent when there is 3 per cent economic growth,' said one official.

The government estimates economic growth this year will be 4.5 per cent to 5.5 per cent.

If growth of 5.5 per cent is achieved, the government estimates 63,500 jobs will be created. The official also said: 'Hong Kong's labour force is growing faster now,  at 1.5 per cent to 1.8 per cent a year, as more and more women are returning to work.'

Still, if labour force growth comes in at the low end of estimates, just 54,300 people will join the workforce this year, and unemployment will fall by 9,000, to 3.9 per cent.

'It is possible we will see full employment this year. This shows our economy has completely turned around from the gloom of a few years ago,' the official said.

'But   people in various trades, such as construction, will still find it difficult to get work.'

Chief Executive Donald Tsang Yam-kuen said last week that he was confident unemployment would fall below 4 per cent in the coming five years.

But the sources said it was hard to see unemployment dropping much further and that a bigger drop might not be beneficial.  'We know that if the jobless rate falls below its natural level it will accelerate inflation,' one source said.

The natural rate of unemployment is the proportion of the workforce between jobs when the economy is operating at full capacity. Since people are always switching jobs, that rate can never fall to zero.

In mid-1997, at the height of the economic bubble, Hong Kong's jobless rate was around 2.2 per cent - considered the natural rate at that time, though it was not the record low. That came in 1989, when the rate fell to 1 per cent.

Another term, coined by economist Milton Friedman, for the natural rate of unemployment is the non-accelerating inflation rate of unemployment.

If unemployment rises above this rate, inflation slows; if it falls below it, inflation rises.

Charles Li Kui-wai, associate professor of economics and finance at City University, said a natural rate of unemployment of 3.9 per cent was realistic. The fact it was higher than the level before the handover in 1997 reflected structural changes in the economy.

'You could say that social security handouts and wealthier households might account for some people deciding not to work,' Professor Li said.

He said it was possible unemployment could drop to 3.9 per cent or less this year. However, he does not see salaries rising as a result.

Standard Chartered Bank economist Tai Hui is more conservative, saying economic growth of 3 per cent will be enough to avoid unemployment rising.

'I would be careful about the natural unemployment rate.  There is a two-tier labour market: the high-value market will experience inflation, while the construction sector will continue to have a high jobless rate which will not come down any time soon,' Mr Hui said.

Citigroup senior economist Joe Lo is forecasting unemployment will average 3.8 per cent for the year and dip to 3.6 per cent by year's end, based on  6 per cent growth. He  predicts average pay rises could  nearly double last year's 2.2 per cent.



Jobs for all  in reach  for first  time since  handover