Population policy ― it all depends on age

By Korea Herald
  • Published : Feb 18, 2014 - 19:32
  • Updated : Feb 18, 2014 - 19:32
Hong Kong is currently consulting the public on its population policy. The policy paper is a very informative and educational document. It is full of useful statistics and asks the citizens what they want in terms of quantity and quality.

The Steering Committee on Population Policy, chaired by the chief secretary for administration, proposes that the objective of Hong Kong’s population policy should be “to develop and nurture a population that will continuously support and drive Hong Kong’s socio-economic development as a socially inclusive and cohesive society that allows individuals to realize their potential, with a view to attaining quality life for all residents and families.”

That is a very noble objective, but the real tough questions are “what number do we want” and how do we define “quality?”

It all depends on the context and the relative position of Hong Kong to its neighbors and competitors as a world city. It is all about how the people of Hong Kong see their own role and their ownership of the vision by 2041.

The facts are illuminating. Hong Kong’s population has grown very slowly and is aging fast. With 7 million in population, of which there are 312,000 foreign domestic helpers (7 percent of the labor force) and an unemployment rate of just over 3 percent, the labor force will begin to peak in 2018 and steadily decline as the population ages. By 2041, 1 in 3 will be over the age of 65.

The reason why the labor force is not growing is because the fertility rate in Hong Kong is the lowest amongst the advanced economies ― even lower than in Japan. Perhaps that is because workers are already having a hard time supporting their family.

Furthermore, the low-skilled foreign labor participation level (excluding domestic helpers) is only 0.1 percent of the labor force, compared with 28 percent in Singapore and 26 percent in Macau.

The current average GDP growth rate of 4 percent per annum comprises 1 percent growth due to workforce growth and 3 percent from productivity growth. When the labor growth rate turns negative after 2018, productivity growth will have to increase substantially for Hong Kong to maintain its growth rate. By comparison, Singapore is looking at 1 percent to 2 percent workforce growth, plus productivity growth of 2 to 3 percent, achieving somewhere between 3 to 5 percent growth.

The policy dilemma is to how to increase both the labor force (quantity) as well as the quality. The free market will not solve this dilemma.

This is because the quantity and quality of land, labor, capital and human capital are all determined by government policy. If a state has difficulty increasing land supply, plus a constraint on population growth through immigration or the birth rate, then everything hinges upon how the talent and production can be nurtured through productivity gains.

Some political leaders use population targets as policy signals, such as the suggestion by former Malaysian Prime Minister Dr. Mahathir that Malaysia should have a population of 70 million (as compared with the current population of 27 million). Singapore’s population policy White Paper, published in January 2013, that recommended a population of nearly 6.9 million by 2030 (3.6 to 3.8 million citizens, 500,000 to 600,000 permanent residents and the rest non-resident workers) cost quite a few votes in the last election.

I would agree that if more than one quarter of the labor force is comprised of foreigners, like in Singapore and Macau, it is not surprising that there is growing resentment among migrant laborers, but surely the number that can be imported depends on the housing availability, the unemployment level and the quality of the imported labor. That requires a clear view of the growth model by 2041, which needs to be spelt out in more concrete terms.

An intriguing statistic is the low labor force participation rate of 58.8 percent, slightly lower than Japan and 8 percentage points lower than Singapore. The steering committee suggests that since 1.6 million people between the age of 15 to 65 are “economically inactive,” perhaps more people can be encouraged to work and to work longer. The view that women who stop working to a raise family are “economically inactive” is surely neither fair nor gender-sensitive.

Certainly, the Hong Kong labor force seems to retire earlier than its competitors, with a 61.7 percent participation ratio for those between 55 and 59, compared with 78.3 percent in Japan. In the age range of 60 to 64, only 37.7 percent of Hong Kong’s labor force is working, compared with 58.1 percent in Singapore.

My view is that it is very difficult for the public to answer complex questions like “If we extend the working life of the elderly, how can we alleviate the possible adverse impacts on the career prospects of the younger generation?”

First of all, it is by no means clear that getting the older people to postpone their retirement worsens career prospects for the young. After all, if the older population remained economically active, stayed creative and maintained higher spending power, there would be more job opportunities for the rest of the labor force.

Second, if Hong Kong does not address its total human capital policy with greater clarity, there is a risk that it will lose in the talent war as every city and country is today trying to raise its game in terms of research and development, innovation and hiring the best global talent. Concrete policies and measures will have to be spelt out, sooner rather than later.

For example, the Third Plenum decision to relax the one-child policy in Mainland China will have far- reaching implications on population growth and demand patterns, such as health care, education and services, all of which are opportunities for Hong Kong. Can an aging population in Hong Kong, essentially a service economy, continue to serve a growing mainland and neighboring economies effectively and competitively?

Of course, to make good decisions, there could be more technical studies to examine the trade-offs, costs and alternatives. All these mean that some tough choices will have to be made and these are ultimately political choices.

Population policy is all about people, which means it is all about politics.

By Andrew Sheng

Andrew Sheng is president of the Fung Global Institute. ― Ed.

(Asia News Network)