(This essay was published in Hong Kong Economic Journal on 11 December 2013)

 

My essay this week is a response to the public engagement exercise on population policy initiated by the Government’s consultation document Thoughts for Hong Kong issued on 24 October 2013. I shall consider what our population challenge is in the next three decades and propose a number of policy recommendations that can be summarized as the need for a set of human capital enhancement policies.

 

Hong Kong’s future as an international metropolis is under severe challenge because of the ageing of our population. Our failure to replenish our population numbers with university-educated talents, especially in the working population, is very worrying. Most developed countries also have a population ageing problem, but Hong Kong’s is particularly serious.

 

Hong Kong’s ageing problem is unique because of the huge influx of immigrants in the period 1945-1951. Nowhere in human history have so many people arrived in a city within such a short period of time. Hong Kong’s emergence as an economic powerhouse and an international metropolis is to a large measure the work of those immigrants and others that followed.

 

Human Capital Ebb and Flow

 

But as this generation ages, Hong Kong is in trouble. Singapore, which has a less severe population challenge because it did not experience a huge influx, appears to be treating the matter much more seriously. Its government has adopted far reaching education and immigration policies to shape the city-state’s future.

 

Hong Kong’s population predicament can be seen visually in Figure 1, which gives the age distribution of Hong Kong people with tertiary education in the period 1980-2050. The figures after 2010 are projections that assume our tertiary education and immigration policies will remain essentially unchanged from the present ones. You can see that between the 1980s and 2020s, the number of people with tertiary education peaks among 20-year olds. This indicates that tertiary education has been expanding, but that expansion is about to come to a halt.

 

Figure 1: Age Distribution of Population with Tertiary Education 1980-2050 – Actual and Predicted

 

Source : HKSAR C&SD, UN Population Projection and Author’s Estimates

 

 

In 2030, the number of tertiary educated people in their early 20s will actually drop significantly before recovering. Equally alarming is that the peak levels in the number of tertiary educated people after 2020 will progressively shift towards the older age groups over time. In 2030, the peak will be around 40-year olds, in 2040 around 50, and in 2050 around 60.

 

The failure to increase the number of tertiary educated graduates either through expanding higher education or attracting well educated immigrants implies that Hong Kong’s educated manpower will also be ageing. This would adversely impact economic growth prospects and limit future social and political opportunities to help those who are disadvantaged in our society.

 

The document Thoughts for Hong Kong outlines a range of possible policy measures to tackle the quantity and quality dimensions of our population shortage. I shall consider why some are false leads and others are more promising. Population requires a long term strategy and must be sustainable to succeed in achieving its goals. It is imperative we make policy decisions quickly and boldly.

 

Women Labor Force Potential Unleashed

 

The first set of proposed measures considers “unleashing the potential of the existing population by increasing the labor force participation rate through removing the barriers to work for our people”. The document focuses on getting more individuals to join the workforce, including homemakers, retired persons, disabled persons and, through better integration into the community, new immigrants and ethnic minorities.

 

All this is agreeable in principle. The question is, how can it be achieved? And what are the benefits-to-costs ratios of the different options for achieving it? Putting homemakers to work is not a novel idea. In the years 1976, 1981 and 1986 about 3.6%, 2.2% and 1.8% of the workforce were outworkers. These were overwhelmingly young mothers who had to stay at home to take care of their children. Employers in those days were smart enough to deliver work to their homes so that they did not have to go to the factory to work. Hong Kong’s free market economy has always been unusually flexible in getting people to work at home. And this was before the internet age had arrived.

 

Competing Uses of Women’s Time

 

Women today already make up 44.6% of the labor force. In 1971, they were only 33% (see Table 1). The number of men in the labor force has not grown since 1996 when it reached 1.92 million. Since then the number of women in the labor force has grown by about 400,000, rising from 1.14 to 1.55 million. The real difficulty with getting homemakers with children to work is that it conflicts with other objectives, for example, protecting mother’s quality time with children. Empirical evidence from many countries has shown conclusively that a person’s earnings are highly correlated with his mother’s education level, but not with his father’s. The time mothers spend with their children is critical to determining their future success.  For this reason getting more women to join the labor force may in effect worsen intergenerational mobility for low income families.

 

Table 1: Number of Men and Women in the Labor Force 1961-2011 (in thousands)

 

Note: Domestic helpers excluded.

Source : 2011 Population Census – Main Report Volume (I)

 

The second set of proposed measures in Thoughts for Hong Kong is “focus the community discussion on effective measures in the Hong Kong context to remove barriers to childbearing and how the care-giving responsibility of families can be assisted by government and community efforts”.

 

Children are, in the words of the 1992 Nobel Laureate in Economics, Professor Gary Becker, “time-intensive commodities”, especially a mother’s time. The primary reason why fertility rates have declined in modern societies is the rising education levels and labor force opportunities of women. These changes cannot be easily reversed. In Hong Kong, the number of women in the labor force will soon overtake men. Encouraging women to have more children will be enormously costly for society, if not futile.

 

Unleashing Labor by Privatizing Public Housing

 

For women, raising a child while working full time becomes feasible if they can afford to employ overseas domestic helpers. Should government and the community subsidize day care centers for women who cannot afford to employ helpers? Who will be employed in these centers? Will they take away workers employed in other jobs? Would these centers have to hire elderly retired persons or overseas helpers? And will they provide quality time for children?

 

In an ageing society many young couples with children often have access to grandparents who take on child care duties. In theory bringing together grandparents and grandchildren should not be difficult in a dense city like Hong Kong. I happen to believe that on the whole, while a grandparent’s time may not be a perfect substitute for a mother’s time spent with a child, it is still superior to hired help or voluntary service.

 

Unfortunately when people live in separate households in public rental housing units that are not close to each other, this option becomes an insurmountable problem. Since public housing units cannot be rented on the market, the tenants cannot move their home to bring grandparents and grandchildren closer to each other. This is just another result of the irksome rigidities of the public housing program.

 

My on-going research with Professor William Chan (陳明智) shows there is evidence that labor force participation rates are lower and unemployment rates are higher for both men and women who live in public rental housing units even when we control for a host of other factors like education, income, marital status and age. This is not surprising because a public housing tenant cannot move his or her residence to take advantage of the better labor market opportunities that emerge from time to time.

 

I think the government could increase the labor force participation rate of the population by at least 1-2 percentage points if it privatized public rental housing units. This is a large effect and I believe it to be the only cost effective policy measure to have such a big impact. In an earlier essay I estimated that the effects of generous income support programs can also be a deterrent to work, but removing such policies is politically and socially infeasible (see my article in HKEJ, 16 January 2013).

 

The third set of proposed measures seeks to “tap the pool of elderly resources to create new impetus to the economic and social development of our community through building an age-friendly environment, promoting active ageing and the development of silver hair market”.

 

Getting more retired persons to re-join the labor force is ultimately a time limited proposition, because at some point the bulk of elderly people will become too senior to be able to make any contribution. At most this proposition buys some time for Hong Kong and at worst it slows down the upward mobility of the younger generation. It is no panacea. The tidal wave of ageing sweeping through our population will persist for the rest of this century and cannot be addressed adequately by tampering at the margins.

 

The final two sets of measures aim to “enhance the quality of the labor force by improving education and training and minimizing skills mismatch,…. equip our people with skills that can support our future economic development” and “build up our human capital with a more proactive policy and targeted approach to attract more talent from overseas and the Mainland”. These goals make long term sense.

 

Attracting Local Talents from Overseas

 

A sensible education and training policy should begin with providing more subsidized opportunities for students at all levels of learning. Of particular importance is to target learning opportunities to the young so that the more disadvantaged in society will not fall behind from lack of opportunities due to  their potential not being fully developed (see my articles in HKEJ, 9 and 16 October 2013). A generous universal voucher scheme that provides for full-time nursery and kindergarten education is the most effective policy in terms of enhancing economic opportunities for all.

 

But education alone is too late to avert the population crisis upon us now. A separate immigration policy outside the 150 per day one-way permit scheme should be introduced. The latter should be preserved for purposes of family reunion. A new immigration quota, set at a minimum of 50 per day, should be established that is open to anyone with a good university degree. Some of the quota could be targeted at pillar industries and areas where professional and technical skills are in short supply. Such a quota would focus government’s and society’s mind on shaping the future and not just the present.

 

In addition, a policy should also be mounted to attract Hong Kong residents currently working abroad to return here. At the very least, there should be an attempt to reach out to them to understand their interests and needs, and the barriers that prevent their return. According to official reports from the OECD, 335,993 persons from Hong Kong were working in member countries in the year 2000, of which 251,407 were highly skilled. More updated numbers are not available, but they should be even higher today. Hong Kong has a lot of human capital manpower overseas that could be tapped but has been neglected so far.

 

The importation of foreign labor to perform jobs in areas where there are too few local workers is not a new idea, but it receives enormous resistance from local labor unions. Their perspective is too shortsighted in trying to defend only the immediate interests of existing labor, many of whom are skilled or semi-skilled. The long-term interest of Hong Kong must be to continuously upgrade the skills of its workforce and the scale of its investments. The long-run shortage of skilled or semi-skilled domestic workers is a normal outcome in a growing economy.

 

Worker importation to alleviate supply side constraints would be a beneficial policy measure for Hong Kong and for these workers as well. Nobody wins when an economy halts. Unless organized labor is prepared to take a long-term, non-zero-sum perspective on economic affairs, they cannot be acting in the true interest of labor and of society. Unfortunately such a perspective is losing appeal as society becomes increasingly divided into haves and have-nots on account of rising gaps in property wealth and labor productivity.

 

No city can thrive or even survive if it fails to receive permanent immigrants to take up residence and temporary workers to undertake jobs increasingly forsaken by the locals as their economies develop. Shanghai’s pre-war economic success was also built on the achievements of migrants who came from near and far. Indeed the vast majority of well-known Shanghainese businessmen in contemporary history were not indigenous to Shanghai, but made the city their home and the place to build their fortunes. China’s miraculous growth in the last three decades could not have happened without massive rural migration into the cities.

 

Immigrants who came in the post-war period were the foundation of Hong Kong’s success and they also enriched the life of the city. Our city must shed the insular mentality that is emerging today if it is to avoid the fate of becoming a capitalist museum in China by the end of this century. The real population challenge for Hong Kong lies in our readiness to adopt and implement policies that are necessary to shaping the city’s future. How Hong Kong can overcome this insular mentality and zero-sum perspective on economic affairs will be the subject of another essay.

 

References:

 

YCR Wong, “The Value of Not Working and Its Policy Implications不打工的價值及其政策後果”, Hong Kong Economic Journal, 16 January 2013.

 

Fourth essay in the series on Rekindling Hong Kong’s Magic

 

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