The Unemployment Problem In Hong Kong Essay (стр. 2 из 2)

decline in the service industry cannot absorb the large labour force, especially workers who

leave from the manufacturing industry.

4. Construction industry

The unemployment rate in this sector is lower when compared with the

manufacturing, service and the retailing industries. In 1995, the unemployment rate in

construction decrease, but the underemployment rate increased.

There are some large project that lead to greater labour supply in the construction

sites. For example, the New Airport project demands many skilled construction labour. On

the other hand, the demand of lower-skilled construction workers decreased because of the

decline in the estate market.

The large construction project are often technology oriented, and the machines and

equipment is more difficult to manipulate. So, unemployed construction workers from the

estate market cannot transfer to the large project because they are not qualified to operate the

high-tech machines. Therefore, some vacancies are unfilled by the low-skill workers.

Unemployment in this sector remains unsolved.

C. Vacancies by different sectors in HK economy

The following chart is given to illustrate the portion of vacancies by different sectors

in 1995.

It is arguable that the unemployment in HK is not so serious, because there are still

many vacancies . However, the problem is that the unemployed workers cannot find the job

that fit to them or they refuse to accept a lower wage. On the other hand, employers may not

employ workers of lower skills. So, there is a situation that the demand and supply of labour

skill is not matched.

D. Relationship Between Unemployment Rate and Inflation Rate

A general belief tells that there is a negative relationship between unemployment

rate and inflation rate. Some economists claim that the contemporary economic situation in

Hong Kong, high unemployment rate associated with a relatively low inflation rate, is a

predictable result from periodical adjustment of built-in economic mechanism.

Since 1987, the persisted high inflation rate had pushed the costs of production and

operation up to a very high level. Therefore, people suffered from a reduction of purchasing

power and negative wealth effect. Meanwhile, people tend to save more because of their

fear on the instability arising from the transition of sovereignty in 1997. On the other hand,

policy-makers tried to release the high inflation rate by means of imposing a higher interest

rate. By the way, the general price level begins to fall after a continuous increase for eight

years.

Inflation rate & Unemployment rate in HK, 85-95

Year

Unemployment rate

Inflation rate

1985

3.20%

3.50%

1986

2.80%

3.00%

1987

1.70%

5.20%

1988

1.30%

7.50%

1989

1.20%

10.00%

1990

1.10%

9.80%

1991

1.70%

11.50%

1992

2.00%

9.20%

1993

2.00%

8.90%

1994

1.90%

8.20%

1995(qtr. 1)

2.80%

9.20%

1995(qtr. 4) (estimated)

3.20%

9.00%

As explained in the previous sections, the high unemployment rate is caused by

many factors, like change in economic structure, importation of foreign labor, which will

eventually lead to a negative wealth effect and a reduction in general consumption level. The

low inflation rate is traded off by a high unemployment rate. On the other hand, the serious

unemployment rate demonstrates that our economy has moved from an economic boom

period to a slump in which accompanied with a low inflation rate.

1. Empirical observation in Hong Kong & Phillips curve

Just similar to what professor A.W. Phillips had practiced during 1950s, we have

plotted empirical observed quarterly data on unemployment and the rate of change in

(wages) inflation for the period between 1977 and 1995 in Hong Kong on a scattered

diagram. In the meantime, we have tried to sketch a curve which seems to fit the data. By

observation, the graph shows that the unemployment rate and inflation rate is negatively

related as long as the curve is downward sloping.

Unemployment rate & percentage change in CPI(A) in Hong Kong from 77-94

Year

Month

Unemployment rate

Percentage change (monthly) in consumer price index(A)

1977

Sep

4.00%

0.35%

1978

Mar

3.00%

0.34%

Sep

2.70%

0.41%

1979

Mar

2.30%

0.71%

Sep

3.40%

1.20%

1980

Jan

3.20%

1.22%

Sep

4.30%

0.61%

1981

Mar

4.10%

0.89%

Oct

3.10%

2.48%

1982

Jan

3.30%

1.50%

Apr

3.20%

1.20%

Jul

4.00%

0.10%

Oct

4.10%

1.20%

1983

Jan

5.10%

-0.30%

Apr

4.40%

1.70%

Oct

4.10%

2.40%

1984

Jan

3.70%

0.80%

Apr

4.10%

1.00%

Jul

3.40%

0.10%

Oct

3.80%

-0.70%

1985

Jan

3.40%

-0.30%

Apr

3.30%

0.50%

Jul

3.00%

0.10%

Oct

3.30%

-0.30%

1986

Jan

3.00%

-0.10%

Apr

3.20%

0.50%

Jul

3.00%

0.70%

Oct

2.60%

0.60%

1987

Jan

2.00%

0.70%

Apr

2.00%

0.80%

Jul

1.80%

-0.10%

Oct

1.90%

1.10%

1988

Jan

1.80%

-0.20%

Apr

1.70%

1.10%

Jul

1.70%

1.10%

Oct

1.50%

0.20%

1989

Jan

1.30%

Apr

1.50%

1.10%

Jul

1.20%

1.10%

Oct

1.40%

0.20%

1990

Jan

1.30%

Feb

1.50%

1.40%

Mar

1.70%

-0.10%

Apr

1.80%

1.10%

May

1.60%

1.30%

Jun

1.60%

0.30%

Jul

1.70%

0.70%

Aug

1.80%

0.10%

Sep

1.70%

1.30%

Oct

1.50%

0.60%

1991

Jan

1.40%

1.30%

Apr

2.10%

0.60%

Jul

2.30%

1.00%

Oct

2.00%

0.60%

1992

Jan

1.90%

1.20%

Apr

2.50%

1.00%

Jul

2.10%

0.50%

Oct

2.00%

0.60%

1993

Jan

2.00%

1.50%

Apr

2.40%

0.80%

Jul

2.10%

0.00%

Oct

2.00%

1.60%

1994

Jan

1.90%

-0.60%

Apr

2.20%

0.60%

Jul

1.90%

1.10%

2. Validity

We have found strong evidence showing that professor Phillips’ findings on the

relationship between unemployment rate and inflation rate is very much applicable to the

real situation in Hong Kong.

3. Implication

Spotting the optimal combination of unemployment and inflation level is a difficult

task. Generally, the governmental policy, people?s expectation, the stage of economic

cycle and the built-in economic mechanism will all contribute effort in such determination.

Cost of Unemployment

Unemployment is costly to society. It affects Hong Kong?s economy directly and

indirectly. We may consider the costs of unemployment in different ways.

Firstly, there is a loss of real output in our economy. When the economy does not

generate enough jobs to employ all those who are willing to work, a valuable resource is

lost. Protential goods and services that might have been enjoyed by consumers are lost

forever. This is the real economic cost of high unemployment.

Secondly, unemployment leads to the decline of purchasing power and negative

wealth effect is resulted. According to the Keynesian Consumption Theory, current

consumption depends on current income. The permanent income hypothesis also

emphasizes how the future affects consumption today by pointing out that people save in

good years to carry them through bad years. Changes in consumption will be affected by

changes in wealth. As a whole, consumption decreases under the negative wealth effect. The

level of consumption and investment gradually declines in sectors such as service industry,

retailing industry, food industry and manufacturing industry. Some industries may even shut

down. Employees lose their jobs as well. This becomes a spiral effect in our economy.

The costs of unemployment should also include the searching costs for new jobs. In

Hong Kong, there is a problem of frictional unemployment. People leave jobs for all sorts of

reasons, and they take time to find new jobs. Inevitably we have a pool of people who are ?f

rictionally” unemployed while in the course of finding new jobs. But in attempting to find

a job (in most favourable wage rate), the worker incurs search costs in terms of extra

time,effort and wages forgone. The wise worker will weigh the gain from extra search

against its costs. If some workers found that it is difficult to find a new job, they may accept

lower wages offered by the employers in order to save the search cost. There may be a trend

that the wage rate gradually decreases and the negative wealth effect still appears.

Also, when there is unemployment, there is a loss of accumulated work experience,

an invaluable asset to the economy. Depreciation of human capital results. This is the social

cost of unemployment.

Moreover, high unemployment leads to higher incidence of psychological disorders,

divorces, suicides, mental anxiety and ill health. People?s self-respect and also their health

are harmed as a result of unemployment.

Futhermore, the private cost of unemployment for an individual may be greatly

reduced if we consider the value of leisure (or of not working), and if unemployment

benefits are offered by the government.

Finally, unemployment is not only an economic aspect, it also becomes a political

conflict. As we know, conflicts are found between two sides. On the side of general public,

labor union and democratic parties, the influx of foreign labor force is the main reason of

unemployment. They urgently ask the government to restrict their entrance. On the side of

Hong Kong government, the enterprises and the capitalist, it is not the main reason.

Unemployment is mainly caused by the structural change of our economy. However, the

request and discontent of the public forced the government to make a concession. That is to

make regulations to restrict the influx of foreign workers.

Solution

Finding ways to solve the unemployment problem is of utmost importance now.

Since the supply of labor is so much greater than the amount demanded, one way is to let

market mechanism to determine the relationship between labor supply and labor demand.

The Government can also implement some new plans to help lower the high unemployment

rate. According to the reasons of unemployment that we have discussed, below are some