HK's labour market

21 September 2005

香港特別行政區政府香港特別行政區政府Hong Kong SAR GovernmentHong Kong SAR Government

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3

Several angles

• Manpower resource balance – skill mismatch? – job mismatch?

• Long-term unemployment rate on the rise?

• Pace of employment growth in current upturn, c.f. average cycle in the 1980s and 1990s

• Major shifts in Phillips curve over time ?

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I. Manpower resource balance

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6

7

8

II. Long-term unemployment rate on the rise ?

9

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q11997 1998 1999 2000 2001 2002 2003 2004 2005

0

0.5

1

1.5

2

2.5

3%

0

2

4

6

8

10

12

14%

Long-term unemployment rising disproportionately during downturn;yet also falling back distinctly during upturn

Long-term unemployment rate

(left scale)

Overall unemployment rate

(right scale)

10

Improvement in long-term unemployment in latest upturn is across-the-board

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q21996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0

1

2

3

4

5

6Percent

Manufacturing

Construction

Wholesale, retail, import/export, restaurants and hotels

Transport, storage and communications

Financing, insurance, real estate and business services

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III. Slow-down in pace of employment upturn after

98?

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13

Job losses in manufacturing vs job gains in service sectorsChange in employment

Between1990 and 1996

Between 1997 and 2003 trough

Between 2003 trough and 05 H1

(‘000) (‘000) (‘000)

Manufacturing -269 -168 -48

Construction 44 -36 1

Services 551 236 217

Wholesale/retail trade 69 -33 25

Import/export trade 92 60 98

Restaurants/hotels 44 -24 18

Transport, storage and communications 63 2 7

Financing -15 8

Insurance 88 8 4

Real estate 17 11

Business services 57 52 8

Community, social and personal services 138 168 38

Total 296 25 170

Job losses -302 -291 -59

Job gains 598 317 229

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Average change in employment (% per annum)

Between1990 and 1996

Between 1997

and 2003 trough

Between 2003 trough and 2005 H1

Manufacturing -7.1 -7.7 -9.1

Construction 3.0 -2.1 0.1

Wholesale/retail, restaurants and hotels 3.6 -1.6 3.8

Services ex wholesale/retail, restaurants and hotels

5.4 2.6 4.1

of which: Trade-related 4.9 1.4 6.7

Total employment 1.7 0.1 2.6

c.f.

Domestic exports -2.2 -6.7 -2.8

PCE 6.4 -0.5 6.4

Construction 5.3 -5.9 -7.8

Exports of goods and services 11.8 5.0 13.8

GDP 5.4 1.6 8.6

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% change in employment per % change in output

Between1990 and 1996

Between 2003 trough and 2005

H1

Manufacturing 3.29 3.19

Wholesale/retail, restaurants and hotels

0.56 0.59

Services ex PCE–related sectors 0.46 0.30

of which: Trade-related 0.42 0.49

Overall 0.32 0.31

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IV. HK’s Phillips curve

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Hong Kong : Any sign of shift in Phillips curve over time?

-4

-2

0

2

4

6

8

10

12

14

0 1 2 3 4 5 6 7 8 9Unemployment rate (%)

Wage inflation (%)

8586

8788

8990

91

92

93

94 95

9697

98

99

200001

02

0304

05 Q1

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Discussion:

• How much more can unemployment improve further?

• Cyclical vs structural part of unemployment?

• Shifts in long-run Phillips curve and nairu?

• Structural factors/rigidities: Increasing job/skill misma

tch ? Wage inflexibility? Labour legislation? Ageing?

Welfare policy? High public transport fare & public h

ousing policy? Increasing barriers to businesses and/or

less entrepreneurship?

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Thank you

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US Phillips Curve (1960-2004)

-2

0

2

4

6

8

10

12

14

16

2 3 4 5 6 7 8 9 10

1960s 1970s 1980s 1990s 2000s

CPI

infla

tion

(%)

Unemployment rate (%)

60

616263

65,98 64

66

6768

6970

71

72

73

74

75

7677

78

79

80

81

82

83

8485

86

878889

90

91

9293

9495

96

9799

00

01 020304

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US Phillips Curve (1960-2004)

-2

0

2

4

6

8

10

12

14

16

2 3 4 5 6 7 8 9 10

CPI

infla

tion

(%)

Unemployment rate (%)

60

616263

65,98

64

66

6768

69 70 71

72

73

74

75

76

77

78

79

80

81

82

838485

86

878889

90

91

92939495

969799

0001

0203

04

Oil shock period

Mid-late 1970s

Early 1970s, late 1980sto mid 1990s

1960s

Late 1990s tonow

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Beveridge curve is downward-sloping

0

1

2

3

4

5

6

7

0 1 2 3 4 5 6 7 8 9

Unemployment rate (%)

Vacancy rate (%)

85

86

87

88

89

90

91

92

9394

95

9697

9899

2000

0102

03

04

81

8283

84

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Manufacturing

0

1

2

3

4

5

6

7

0 1 2 3 4 5 6 7 8 9

Vacancy rate (%)

Unemployment rate (%)

Services sector

0

1

2

3

4

5

6

7

0 1 2 3 4 5 6 7 8 9

Vacancy rate (%)

Unemployment rate (%)

Beveridge curve by sector

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Phillips curve for high-skilled and low-skilled workers

-5

0

5

10

15

20

25

0 1 2 3 4 5 6 7 8 9 10

Unemployment rate (%)

Wage inflation (%)

Low skilledHigh skilled

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Correlation with output gap

Lag 1 quarter

Lag 2 quarters

Lag 3 quarters

Lag 4 quarters

Overall unemployment rate -0.89 -0.90 -0.90 -0.88 Long-term unemployment rate 6 - 9 months -0.73 -0.80 -0.80 -0.73 9 - 12 months -0.68 -0.80 -0.83 -0.82 >12 months -0.45 -0.59 -0.68 -0.73

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Value added per person

1993 2003

(‘000) (‘000)

Manufacturing 172 247

Services 347 390

W/R, I/E and R/H 236 283

Transport, storage and communication

250 351

Financing, insurance, real estate and business services

734 532

Community, social and personal services

245 307

Economy average 306 373

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% change in employment per% change in GDP

Trough 2 years after trough

1982 0.26

1985 0.22

1989 0.11

1995 0.87

1998 0.20

2003 0.36

Peak-to-Peak

1987 – 97 0.31

Average: 0.36