Yes, unemployment statistics has been disappointing although the economy has been expanded uninterruptedly for the past four years. The current jobless rate of 4.1% means that for every 1,000 people who are either working or waiting for jobs, 41 are now without job. The number considerably exceeds the average 37 over the past 25 years. In the heyday 1982 to 1997, only 25 people on average were jobless. The number hit a historic low of 11 in 1989. Now, at 4.1%, the unemployment rate has fallen significantly from the peak but the decline has flattened. Why?
Economic cycle cannot explain the prevailing unemployment. Is it structural? The government would be happy to agree and reiterates its old tale that Hong Kong has transformed from a manufacturing town to a service-oriented city. The government likes to say that workers who are laid off from factories remained unemployed and that has limited the decline of unemployment rate. The tale suggests that the prevailing unemployment is something irreversible, and the government can hardly do anything about it. However widely cited it is, the tale is false.
The chart on the right (Source: Hong Kong Government) nails the lie.
This chart shows the unemployment trend by age group since 1982. All lines go hand-in-hand, up and down together. The unemployment among workers aged between 50 and 59 has been high in recent years. But the fact is that all age groups, young and old, have soared. If it were structural unemployment that dictated the overall unemployment, one would expect to see the older people, the green line and the orange line, suffer and the others do not. If it were structural unemployment that causes the whole unemployment problem, the jobless rate among the younger people, represented by the red line and the light blue line, should be low. But that is not the case.
The highly consistent pattern across ages suggests that structural changes have played a minor role, if any, in explaining the whole employment problem. There must be some underlying force that affects all workers, young and old.
Apart from "M-shaped" phenomenon, Hong Kong's social welfare has risen coincidently with the rise of unemployment rate.
See the chart on the right (Source: Hong Kong Government) and you will find changes in jobless welfare ground-breaking.
The red line in the chart shows expenditure of Comprehensive Social Security Assistance (CSSA) Scheme since 1994. The black line shows the number of recipients. The expenditure fifth-folded to HK$17.6 billion in 2004, from HK$3.4 in 1994. The number of recipients increased to 542,000 from 140,000 during the same period. How large is the group of recipients? The number of recipients in 2004 was more than double the number of unemployed people.
How much does the scheme pay as compared with an employer? According to official statistics, an eligible family of three members on average received HK$7,700 a month in the year ended October 2005. A single-member family got HK$3,500 a month.
A cleaning worker earns about HK$3,000 to HK$5,000 after one whole month of hardship. He loses almost all his leisure time and probably spends most of his saving in medical expenses due to the infectious working environment.
The welfare system gives incentive for people not to work. i believe that is the major cause for the prevailing unemployment problem.
Unemployment driven by the welfare hurt the economy harder than cyclical and structural causes do because it tends to stay for a long period of time and affect all workers, young and old. Today's stagnant French economy is an example.
Taxpayers are worse-off. More importantly, the society loses a group of workforce. Small businesses cannot recruit unskilled workers. In the past, small businesses such as textile, jewelry and spectacle companies provided on-job training for young workers, giving rise to a group of innovative talents. For instance, the bosses of listed companies, Shenzhou (2313), Luk Fook (590) and Arts Optical (1120) started their careers as trainees. As trainees, they received minimal pays. All they can ask for were daily meals and the teaching of their "masters" in the hope that they would one day start their own businesses using the techniques taught by their masters.
School courses cannot replace on-job training because students in school aim to take course credits, not the mastering of certain tasks. Without such no-pay training system, there won't be any movie star Jackie Chan.
The welfare expenditure that kicked off in mid-1990's has destroyed the opportunities for on-job training and the innovation that would emerge. As Hong Kong has shown in the past, innovation, not government direction, is what an economy needs for it to go forward.
Next time, i will continue to explore the topic of opportunities.
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