Hong Kong unemployment rate

A holistic approach to understanding unemployment

Hong Kong’s GDP growth used to be a good predictor of the unemployment rate but this is no longer the case. The unemployment rate has consistently stayed between 3.1 percent and 3.5 percent since July 2011 even though GDP growth has been fluctuating. The main reason why Hong Kong’s unemployment rate has stayed low while GDP growth has been weak is that demand for Hong Kong’s labor has come from both local demand and explosive demand derived from China’s mainland.

To compare, Hong Kong’s labor supply growth was rather stable and predictable over the years, averaging 1.1 percent in the past 10 years. On the other hand, “derived” labor demand — for example, that coming from neighboring parts of the mainland — has grown exponentially.

To put this into perspective, the number of mainland visitors coming to Hong Kong in 2013 is 4.8 times to size of that in 2003, when the Individual Visits Scheme was first introduced, but total labor supply was only 1.1 times larger over the same period. In the retail sector, retail sales volume growth averaged 13.4 percent annually over 2009-2012 while the sector’s labor force growth averaged just 2.1 percent annually over the same period (labor force data for the retail sales sector only available since 2008).

Derived labor demand impacts more than the retail sector. Closer integration with the mainland has increased demand for labor in almost all sectors, the more obvious ones being retail, catering, accommodation and property. In fact, any corporation that is doing business with the mainland would have more derived labor demand. Recently, even the demand for educational and medical services has risen due to integration between Hong Kong and nearby regions. In the past, when Hong Kong was less integrated with the mainland, labor demand was a simpler function of local demand.

Besides the impact from rapid growth in derived demand for labor, supply-side factors can also explain Hong Kong’s consistently low unemployment rate. Many sectors face chronic labor shortages regardless of the state of the economy.

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