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Labour and Productivity

More people are working in Hong Kong than at any other time in the city's history, yet the unemployment rate remains stubbornly high. The Chamber's Chief Economist, DAVID O'REAR, crunches the numbers to find out what is going on

At nearly 3.3 million jobs, employment in Hong Kong has never been higher. New records were set in four of the last five months, yet the unemployment rate remains stubbornly high, at 6.7 percent. What's going on?

Employment in the first 10 months was up 44,385 as compared to the same 2003 period, while unemployment dropped by 32,300 and under-employment -- those working fewer hours than they wish -- fell by 5,423. Surely such a sharp turn around must mean that the unemployment rate is getting back to the normal 4-5 percent level, right?

Not quite. The unemployment rate is a measure of job holders against the labour force, one divided by the other. When the labour force rises, employment must rise at least as fast just to keep the rate constant. In January-October, the labour force (those who say they are willing to work) increased by 14,828 people. As a result, the 1.4 percent rise in employment generated only a 0.9 percent improvement in the unemployment rate.

The labour force is growing less quickly than overall employment, but still is rising as a share of the population. There are two possible explanations for this, one demographic and the other economic. Demographically, the typical working age population (ages 15-64) may, through an accident of birth, be rising at a faster pace. Alternatively, more people may be looking for work, including those who were discouraged from seeking employment last year. A combination of the two is at work in Hong Kong: the working age population rose an average 1.08 percent per annum in the past five years, while population growth overall was just 0.8 percent a year. The first graph shows the rise in the labour force as a percentage of total population, and as a share of the appropriate age group.

In the mid-1990s, employment grew strongly in the U.S., Taiwan, Hong Kong and Singapore, as illustrated in the second graph. Japan's low population growth rate explains that the country's near-zero change, and Korea's numbers show the impact of job losses from the Asian Financial Crisis. In the last five years, job growth rebounded strongly in Korea and remained healthy in Singapore, while the other economies saw sharp drops in the pace of employment expansion.

The ratio between the growth in real GDP per employee and that of real GDP itself may be a proxy for changes in productivity. Among the six economies mentioned above, the U.S. had the strongest improvement, followed by Hong Kong. Our own strong showing is based on very good growth in trade, where productivity enhancements -- turning over more product per person employed -- is easier than, say, producing more widgets or wheat.

The last graph shows relative positions as measured by real economic growth and growth per employee over a 15 year period. Korea stands out for the fastest growth per employee, indicating substantial improvements in capital, productivity or both. The bottom scale is average annual growth in real GDP, with Taiwan and Singapore on the right expanding around 6 percent per annum. The left scale measures growth in real GDP per employee.

What is startling is Korea's faster rise in output per employee than in overall output. This is partly explained by strong capital investment, and partly by the temporary slump in employment that hit Korea harder than the other economies on the chart.

In Taiwan and Singapore, more workers were needed to produce the incremental improvements in overall GDP growth, whereas improvements in both measures were balanced in Hong Kong, the U.S. and Japan. What isn't captured well in this data is output from economic activities that take place in other economies, most particularly Hong Kong't investments in other parts of China.

The next 15 years will likely see continued strong growth in GDP per employee in economies where the use of information technology and mobile communications is already well established. Spreadsheets, e-mail and word processing fed productivity enhancements over the past 15 years, and greater use of such technology -- and of applications and capabilities we cannot even begin to imagine -- are likely to be key drivers in 2005-20. 

David O'Rear is the Chamber's Chief Economist. He can be reached at david@chamber.org.hk