In the annual Business Prospects Survey conducted by the Chamber in November, it was noted that businesses were more inclined to adopt a "wait and see" approach to expansion with 50% and 62% of respondents planning to respectively maintain local headcount and capital investment over the next 12 months.
For t hose with hiring intentions (34%),a shortage of skilled workers has, however, made this quite challenging. In fact, "brain drain" was identified as the second most important issue for larger corporations according to the same survey. A net population outflow has only served to exacerbate Hong Kong's dwindling work force, which peaked at 4 million in August 2018 and has since declined by some 5%.
The predicament of being shorthanded is not unique to Hong Kong, and has become quite endemic among advanced economies. In the U.S., the latest data shows that there are 10.3 million job openings but only around 5.5 million unemployed workers. In the U.K. where vacancies have dropped from record levels, these have remained stubbornly high at 1.2 million compared to the average of 655,000 in the decade before the pandemic.
Such shortages can be ascribed to three major factors. First, there has been a boom in demand post-lockdown as most of the world has reopened following almost three years of inactivity since Covid-19 tore across the globe. According to the International Monetary Fund, the global economy expanded by 6% in 2021 and is estimated to grow 3.2% in 2022 after a 3% contraction in 2020.
The second contributing factor is a reduced work force caused by involuntary and voluntary attrition, the former due to early retirement caused by long-term health issues arising from Covid and the latter because of generous government handouts. The pandemic has also adversely affected worker mobility - upsetting the dynamics on an otherwise routine flow of migrant workers between other markets and their home countries - which have added to chronic labour shortages. These have been compounded by a mindset shift among the young generation, which are much more keen about striking a healthy work-life balance and less likely to enter the workforce until after their early 20s, compared to their forebears.
The third and final reason - an ageing population - is of a structural nature and therefore potentially more intractable. As the post-war generation retires, low birth rates in much of the developed world have inevitably given rise to fewer workers. In the U.S., the share of the population aged between 20 and 64 is estimated to fall from 60% to 56% between 2010 and 2030 according to the World Bank. A similar trend is taking place in the European Union with expectations for a similar demographic to drop from 61% to 56%.
In the face of such human capital shortages, businesses will have to recalibrate their expectations and demands during the recruitment process by including candidates with less experience or lower qualifications. Otherwise, they will have to scale back operations. Against such a backdrop, employers would also have to contend with raising wages as they compete with each other in the labour market. This would in turn push up operating costs, which are then passed onto the market sparking a vicious cycle of pay rise demands to offset inflation.
A shrinking labour force is threatening to undermine Hong Kong's post-pandemic recovery by scuttling businesses'ability to effectively seize such opportunities. Unless the talent pool can be replenished and sustained, businesses are likely to engage in a zero-sum competition with each other for a diminishing pool of workers.
Although major market corrections in 2022 and expectations of higher living costs may motivate older workers to reconsider or delay their retirement plans and pensioners to return to work, these cannot be regarded as a long term and sustainable solution. A key consideration is whether Hong Kong is able to retain home-grown talent while continuing to attract workers from abroad.
The Government has taken vital steps to address the issue by making att racting talent a top policy priority. However, opening the doors a bit wider will not be enough as the competition for talent is global and intense. Many developed econom ies are also experiencing labour shortages and have since relaxed their immigration rules. For instance, Canada aims to bring in more than 1.5 million new immigrants over the next three years wh ile Australia raised the availability of permanent migration visas for 2022/23 by more than a fifth to almost 200,000.
As a coping measure, companies can innovate and adapt to a changing operating landscape through such means as digitization and automation to offset the need for human workers as is t he case during Covid.
That being said, machines cannot and are unlikely to completely displace human employees. For Hong Kong, which is absent of natural resources, we can only continue to bank on our human capital to sustain the SAR's economic momentum in the years to come. In that regard, timely and appropriate policy measures are critical to ensuring that there is a constant and adequate supply of qualified labour. Otherwise, Hong Kong could find itself locked in a cycle of stagnating investment and anaemic growth.
Wilson Chong, email@example.com