Unemployment, Depressing Wages, and Demand for Welfare:
The Case of Hong Kong

A drastic change in the wider environment of the Hong Kong welfare system is the increase in the unemployment rate, with the concurrent decrease in the wage levels of the general employees. Before 1998, Hong Kong had always been proud of its full employment situation and that all who wanted to work could find a job. It is not to say that Hong Kong had not experienced economic setbacks before, but they seldom caused much concern as the economy would soon bounce back and workers in demand again. Hence, when the Asian Financial Crisis came in the later part of 1997, most Hong Kong people, including the Chief Executive and the Financial Secretary, believed, like in the past, the negative impact on the economy would only be minimal and that the rising unemployment rate would soon come down.

The Hong Kong economy did revive somewhat in 1999 and in the first half of 2000, but the unemployment rate remained high; it hovered at around 6 percent and reached 8.7 percent in the summer of 2003, a few months after the Severe Acute Respiratory System (SARS) outbreak. Although employment has recovered in the second half of 2003 and 2004, most economists, as well as Government officials, believed that the good old days of full employment had probably gone forever. What has happened that makes jobs so hard to come by? Would depressing wage levels go up again? In what way has the demand for social welfare, particularly social security benefits, been affected by high unemployment and low wages?

Before attempting to answer the above questions, it should first be pointed out that, economically, Hong Kong is presently undergoing a structural change. The Chief Executive has already warned the Hong Kong people that they must prepare for the coming of a knowledge-based economy. While the meaning of a knowledge-based economy is yet to be defined, workers are already finding jobs not easy to locate. Is the coming of a knowledge-based economy the only reason to account for the rising unemployment rate? If one looks back at what had happened before 1998, the demand for unskilled laborers had already dropped, as manufacturers moved their factories to the Mainland for lower production costs. However, for the large part of the 1990s and up to 1998, redundant workers had usually no difficulties in finding jobs in the service sector.

The Asian Financial Crisis had no doubt made many Hong Kong people less ready to spend, particularly when the property market plummeted in 1998. The result was a dwindling demand for labor in the service industry. As the Hong Kong economy contracts, it is obvious that the hardest hit are the baby-boomers, those who are born after the World War II and are now aged between 45 and 55. This group of middle-age adults has not benefited from compulsory free education, which was only introduced in 1971, and they have often worked in only one trade and possess no skill. Hence, when they lose their jobs as the economy turns bad, they are left in a situation, either failing to find another job or getting one with much lower pay.

Another factor that has contributed to high unemployment and depressing wages is the increase in the number of lowly educated and unskilled adult immigrants coming to Hong Kong from the Mainland. Hong Kong is often described as an immigrant society, as, over the years, waves of immigrants from the Mainland had found their ways, either legally or illegally, to settle in Hong Kong and represented the major factor of population increase. Up to the mid-1990s, the influx of immigrants from the Mainland had generally produced a positive rather than a negative impact on Hong Kong's social and economic development. The increase in the quota of Mainland immigrants to settle in Hong Kong, first from 75 to 105 and then to 150 persons a day since 1995, has however reverted the picture.

The purpose of the increase in quota is to enable those who possess the right of abode under the Hong Kong Basic Law to come to Hong Kong as soon as possible. Hence, out of the 150 persons a day, 60 are specially allocated to children with at least one parent in Hong Kong and 30 are for adults joining their spouses. The result is that, unlike immigrants coming to Hong Kong in the 1970s and 1980s, those who came after 1995 are mainly children and female adults. While most female adults would stay at home as housewives, those who come out to work often find jobs as unskilled labor and further depress the wages.

The disappearing manufacturing sector and the increasing supply of unskilled labor help to explain why the high unemployment rate fails to come down even when the Hong Kong economy has recovered after the SARS outbreak. It looks unlikely that Hong Kong will ever go back to the days when full employment is the norm rather than the exception. Furthermore, depressing wages mean that what unskilled workers are earning is already hardly enough to support a family. It is therefore not surprising that more and more families, when they have only one member holding a low-pay job, may find it necessary to apply for CSSA.

Ever since 1971 when the Public Assistance Scheme was introduced, the premise of the social security system in Hong Kong is that those who possess working capacity and are prepared to work should be able to find a job and support their families. Hence, allowances given under CSSA to able-bodied persons are deliberately set at a low level, hoping that the inadequate assistance would push them back to work again. In fact, Government officials have never concealed the fact that able-bodied persons dependent on CSSA are less sympathetically treated than the elderly and disabled recipients. This strategy has proved to be successful up to the mid-1990s, as only a few thousand CSSA cases were made up of members with working capacity. However, the increasing number of able-bodied persons, over 100,000 in 2004, who are now dependent on CSSA, shows that the social security premise is no longer valid.

Although Hong Kong is not a "welfare society," the fact that over half a million Hong Kong residents have now found it necessary to depend on CSSA indicates that time has come for a thorough review, so that the Scheme can cater for the financial needs of those with working capacity. Until the end of 2004, the SAR Government is still not ready to reform the Scheme, hoping that the employment situation would return to "normal" and able-bodied CSSA recipients would come down in number. This kind of wishful thinking will only delay the introduction of much needed changes and make the existing system even more inefficient and unfair, as the needs of the poor in Kong are no longer the same. What one can hope for is that the SAR Government would squarely face the rising needs of the Hong Kong people for financial assistance and that they may be people with or without working capacity.


There have been major unprecedented changes that have occurred in social welfare -- a new image of social welfare is emerging, calling therefore a revamp of the entire system. Changes in the social welfare system are inevitable, as the wider social policy environment in Hong Kong has already changed beyond recognition.

It would not have been imaged that the SAR Government, only one year after its establishment, would run into fiscal deficits. It would also not have been imaged that Hong Kong would have an unemployment rate of consistently over 5 percent without the slightest prospect that it would quickly come down in the near future.

With the unemployment rate staying at a high level, more and more able-bodied persons are now dependent on CSSA, again a situation that has never been imaged before.

It is therefore doubtful whether the present social security system and the social welfare services are capable of meeting the challenges of the new situation.

The Government must re-prioritize its social commitments. The increase in able-bodied persons dependent on CSSA alerts the Government to the urgency of reviewing the functions of the present social security system -- that the SAR Government must bring in the much needed reforms.

by Nelson W.S. Chow (The University of Hong Kong)