2. HK's labour market 21 September 2005 香港特別行政區政府 Hong Kong SAR Government

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4. 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 ?

5. 4 I. Manpower resource balance

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9. 8 II. Long-term unemployment rate on the rise ?

10. 9 Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1 199719981999200020012002200320042005 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)

11. 10 Improvement in long-term unemployment in latest upturn is across-the-board Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2 1996199719981999200020012002200320042005 0 1 2 3 4 5 6 Percent Manufacturing Construction Wholesale, retail, import/export, restaurants and hotels Transport, storage and communications Financing, insurance, real estate and business services

12. 11 III. Slow-down in pace of employment upturn after 98?

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14. 13 Job losses in manufacturing vs job gains in service sectors Change in employment Between 1990 and 1996 Between 1997 and 2003 trough Between 2003 trough and 05 H1 (‘000) Manufacturing-269-168-48 Construction44-361 Services551236217 Wholesale/retail trade69-3325 Import/export trade926098 Restaurants/hotels44-2418 Transport, storage and communications6327 Financing-158 Insurance8884 Real estate1711 Business services57528 Community, social and personal services13816838 Total29625170 Job losses-302-291-59 Job gains598317229

15. 14 Average change in employment (% per annum) Between 1990 and 1996 Between 1997 and 2003 trough Between 2003 trough and 2005 H1 Manufacturing-7.1-7.7-9.1 Construction3.0-2.10.1 Wholesale/retail, restaurants and hotels3.6-1.63.8 Services ex wholesale/retail, restaurants and hotels 5.42.64.1 of which: Trade-related4.91.46.7 Total employment1.70.12.6 c.f. Domestic exports-2.2-6.7-2.8 PCE6.4-0.56.4 Construction5.3-5.9-7.8 Exports of goods and services11.85.013.8 GDP5.41.68.6

16. 15 % change in employment per % change in output Between 1990 and 1996 Between 2003 trough and 2005 H1 Manufacturing3.293.19 Wholesale/retail, restaurants and hotels 0.560.59 Services ex PCE–related sectors0.460.30 of which: Trade-related0.420.49 Overall0.320.31

17. 16 IV. HK’s Phillips curve

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19. 18 Discussion: How much more can unemployment improve further? Cyclical vs structural part of unemployment? Shifts in long-run Phillips curve and nairu? S tructural factors/rigidities: Increasing job/skill mismatch ? Wage inflexibility? Labour legislation? Ageing? Welfare policy? High public transport fare & public housing policy? Increasing barriers to businesses and/or less entrepreneurship?

20. 19 Thank you

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27. 26 Correlation with output gap

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34. 33 Value added per person 19932003 (‘000) Manufacturing172247 Services347390 W/R, I/E and R/H236283 Transport, storage and communication 250351 Financing, insurance, real estate and business services 734532 Community, social and personal services 245307 Economy average306373

35. 34 % change in employment per % change in GDP Trough2 years after trough 19820.26 19850.22 19890.11 19950.87 19980.20 20030.36 Peak-to-Peak 1987 – 970.31 Average: 0.36