Hong Kong’s Ageing Population and Workforce

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Hong Kong’s Ageing Population and Workforce

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Table of Contents

Introduction ..................................................................................................................................... 3

Ageing Workforce .......................................................................................................................... 4

Demographics and Heath Indicators ............................................................................................... 4

An Ageing Workforce and Provisions of Retirement Benefit ........................................................ 5

Trend of population and workforce ................................................................................................ 7

Effects of ageing on macro economy.............................................................................................. 8

Initiatives adopted by authorities to attend to ageing ..................................................................... 9

Ageing Workforce and Provision of Healthcare Benefits .............................................................. 9

Strategies to manage demographic changes ................................................................................. 10

PESTLE Analysis ......................................................................................................................... 11

Reference ...................................................................................................................................... 15

Bibliography ................................................................................................................................. 17

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Introduction

Hong Kong is a fast modernising society that has gradually transformed from an industrial export

hub to entrepot and service functions. Compared with regional standards nearly 5.9 million of the

region‟s population as per 1992 census have good living standards. However there are issues

relating to the well-being of the elderly people as they are not necessarily financially secure.

Besides this there are rising problems with regard to the care needed for the elderly family

members. Hong Kong economy is passing through a population “boom” over the past 150 years

not on account of constant birth rate but due to a dramatic fall in the death rates. This has been

possible through the rapid progress in medicine that has resulted in a rise in the adult population.

A rise in the greying population brings forth a dilemma with respect to the workforce shrinkage

and creates an additional pressure on the health and welfare services. There is a direct relation

between the two as health and welfare services depend on the public avenues of funding like

taxes. However the waning size of the labour force indicates that a small size of the Hong

Kong‟s population has to bear the burden of taxes. The shrinkage in the working population

affects productivity as well as economic growth. This “cause and effect” simply results in lower

levels of productivity. But this phenomenon is not limited to Hong Kong rather it is being

witnessed in developed regions like Japan and mainland cities like Shanghai. The solution to this

can be extension of retirement age, reorganizing the welfare system, stimulating mobility of

workforce and enhancing productivity (Hong Kong Industrialist, 2007, pp. 15).

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Ageing Workforce

Corporate research was conducted to look into the healthcare provisions and retirement benefit

issues of the workforce in major Asia Pacific countries. It is seen that workforce in Hong Kong

has been rapidly ageing. In the year 2000, 25 % of the population in Hong Kong was aged above

50. The total population of the country was 6.6 million in the year 2000. (Watson Wyatt, 2006,

pp. 1)

Demographics and Heath Indicators

(Earth Trends, n.d.)

The above figure shows that the population, below 15 years, has almost remained the same since

the year 1975. It is also expected to remain at the same level till the year 2025. There has been a

steady increase in population for the age group 15 to 65 years. The trend also shows this increase

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will continue till 2025. There has been a significant rise in population for the age group above 65

years from 1975 to 2000. The increase is expected to be even sharper for the next 25 years. Thus

it is seen that Hong Kong is witnessing a significant rise in the ageing population over the years.

(Earth Trends, n.d.)

This figure also shows a sharp improvement in the life expectancy level for Hong Kong in

comparison to the world economy. This difference is expected to prevail for the next 25 years.

(Earth Trends, n.d.).

An Ageing Workforce and Provisions of Retirement Benefit

Ageing population is a significant phenomenon in most developing and developed countries. The

causes for this similarity are mostly same for all countries, which include an increase in the life

expectancy rate and declining birth rates. This phenomenon is prevalent not only in Hong Kong

but in the entire Asia Pacific region. Life expectancy was 78.6 years in the year 1992 for Hong

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Kong. It is expected that this number will be 84.2 years by the year 2050. Birth rate is expected

to decline from “12 babies per thousand” to “6 babies per 1000” from the year 1992 to 2050.

The system of MPF (Mandatory Provident Fund) was started in December, 2000. Before this

period only one third of the workforce of Hong Kong could enjoy some form of retirement

benefits. The MPF plan is considered to be a DC (Defined Contribution Plan) which was

recommended by the World Bank as a measure to provide financial assistance to the retirees

during old age. It is one of the three pillars recommended by the bank. Under this system 85 %

of the workforce in Hong Kong is covered under some retirement scheme benefits. The

remaining 15% of the workforce comprises people with low incomes and short term

employments. Government is trying to bring them under coverage by expanding the present MPF

scheme. According to the level of salaries, each employer and employee contribute 1.6% to 5%

of the employee‟s salary to the MPF accounts. Employees whose salary is less than HK$5,000

need not make any contribution to the fund. Because the maximum rate of contribution is 10% of

the employee‟s salary, it might not be possible to provide financial security to the retirees with

increase in their lifespan. The Hong Kong government is actually working on increasing

contribution levels to the MPF fund. This scheme is suggestive of the fact that the present

retirement benefit scheme may not be sustainable against a rapidly ageing population. Presently

Hong Kong is also facing a problem of breakdown in the “traditional familial support

mechanism”, in which parents live with their children who provide them with financial support.

Because of the decline in birth rates the need for financial independence at the time of retirement

has increased. Thus the need for retirement benefits sponsored by companies has increased.

Unless companies begin to implement such strategies to support the ageing population in Hong

Kong, the country will face severe implications in the coming future (Watson Wyatt, 2006, pp.2)

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Trend of population and workforce

The rise in the median age from 34 in the year 1996 to 39 in a period of ten years as per the 2006

population census highlights an ageing trend in the population of Hong Kong. The pace of

ageing is anticipated to accelerate in another five to six years. According to the “Commissioner

for Census & Statistics” nearly 27 percent of the region‟s population is expected to reach the

mark of 65 years or higher in 2030s (Admin & Civic Affairs, 2007). This means that in the future

the working population will have large count of retirees (Mandatory Provident Fund Schemes

Authority, n.d.). This suggests a drastic rise in the median age as it means that it will rise by

nearly 26 years more. No doubt it will exert further pressure on the working population which is

already grappling with low productivity owing to declining working population.

In 1996 the labour force was 3.2 million and this grew to 3.6 million in 2006. But this has been

accompanied by a drop in the participation rate of workforce from 63 percent to 60 percent. This

is primarily because of an increase in the size of the population and the change in the age

structure of the population (Admin & Civic Affairs, 2007).

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Effects of ageing on macro economy

The channel through which aging population influences the economy is reflected on the pattern

of earnings. The earnings rise as the individuals join the labour force and acquire work

experience; peaks towards the middle age and declines as an individual reaches retirement. A

change in the population age structure impacts labour supply due to differences in productivity.

As the countries pass through demographic transitions they experience surplus current account

positions and a change in the demographic pattern towards the ageing population leads to a

decline in this surplus position. This indicates that ongoing changes in Hong Kong‟s

demographic pattern can have a major affect on the investment, saving and current account

balances in the coming years (Leigh, 2006, pp. 5).

Source: (Leigh, 2006, pp. 4).

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Initiatives adopted by authorities to attend to ageing

Over the years, Hong Kong SAR has allocated resources to assess present and future trends in its

demographic pattern. In 2002 a task force was set up by “Chief Secretary for Administration” to

address the population issue. Its immediate objective was to take an account of the challenges to

the Hong Kong economy arising from the demographic characteristics and trends, framing an

objective of population policy and suggesting policy objectives for the government to explore.

The government of the region runs various schemes facilitating the import of workers. The

Supplementary Labour Scheme (SLS) that was introduced in 1996 is governed by the principles

of- priority to the local workers in filling up job vacancies and if the recruiter is not able to hire

local staff then he can opt for importing workers. In an attempt to provide better health care

services, the authorities have also started with measures like extending elderly recipients of

benefits relating to “Comprehensive Social Security Act (CSSA)” to Fujian and Guangdong

provinces. This is expected to allow the retirees to emigrate to Mainland giving them access to

the retirement benefits in the Hong Kong region (Leigh, 2006, pp. 9).

Ageing Workforce and Provision of Healthcare Benefits

The phenomenon of ageing workforce in the economy of Hong Kong has brought forward

another major problem relating to conditions of chronic health. Such conditions require

continuous and expensive treatment and serve as an efficiency test of a healthcare system. High

chronic conditions in the region can be attributed partially to ageing. Hong Kong‟s population is

expected to age rapidly in another 15 to 20 years and this will increase chronic condition

incidences. Current state of the healthcare system in Hong Kong provides some comfort but it is

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important to sustain the same in the wake of rising expenditures on healthcare (Watson Wyatt,

2006, pp.3).

Strategies to manage demographic changes

The ageing problem is severe in Hong Kong. But the region‟s entrepreneurial business segment

indicates that it will remain competitive as there is a transition to the aged society. With

intensification in global competition Hong Kong‟s transformation to a supplier of “high value-

added services” there will be a rise in the demand of specialized workers. The companies in the

region can improve their competitiveness by retaining competent and qualified staff. The

companies have sufficient number of strategies in place to take care of the health services and

retirement needs that are brought forth by the ageing labour force. Ageing workforce means that

the companies can no more avoid healthcare benefits. Long term profitability of corporate

require well-designed retirement and healthcare benefits (Watson Wyatt, 2006, pp.4)

A survey of the employers revealed that nearly 68 percent consider „ageing population‟ as a

major change in Hong Kong‟s demographic structure over the coming 15 to 20 years thereby

increasing the need of retirement and health benefits, raising serious problems for the employers

and government in the region.

To address to the changes in the demographic structure the employers consider altering statutory

benefits like “Statutory healthcare benefits” and “Statutory retirement benefits”. The methods

proposed by the companies to take care of the needs relating to health and retirement include

increasing the statutory contributions of the company and formulating added benefit plans

(Watson Wyatt, 2006, pp.5).

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PESTLE Analysis

PESTLE analysis is an analytical tool that assists in analysing the impact of changes in the

demographic structures on macro-economic factors. This analysis has been done to identify

changes in the demographic pattern characterized by Hong Kong‟s ageing population.

Political-The rise in the ageing population of Hong Kong has opened new challenges for the

government of the region with regard to the rising health benefits and shrinking workforce. This

is reflected from the rise in the ageing trend over the last ten years.

Economic-The average monthly income of the domestic households was $17250. This

represents a dip of nearly 1 percent over the last ten years. This can be on account of a decline in

the working population and the rise in the ageing population of Hong Kong.

Social- There has been changes in the retirement benefit plans of the company mainly for taking

care of the needs of the ageing workforce.

Technological-A fall in the death rate is one of the reasons contributing to a rise in the average

age of the region‟s population. This shows that Hong Kong‟s economy has grown over the years

indicating technological advancement that is the main reason for the changes in the age structure

of the population.

Environmental-The announcement of supplementary retirement plans or schemes by the

companies to take care of its ageing workforce is indicative of the environmental changes that

have taken place in the region.

Legal- The legal system of Hong Kong has a favourable view among the US companies that has

been facilitated by low taxation and free information flow.

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Findings

An interview of important decision makers on company benefits revealed the following. In Hong

Kong this involved 206 of the top rated 2000 companies ranked in terms of revenue (Watson

Wyatt, 2006, pp.6). This revealed that 23 percent of the employees agreed that their company

offer additional retirement benefits and the remaining 77 percent did not agree to this (Watson

Wyatt, 2006, pp.13). In response to the steps initiated by the company to increase supplementary

benefits of retirement over the next five years- 7 percent confirmed to the implementation of the

same whereas a vast 69 percent responded that there was no thought on it (Watson Wyatt, 2006,

pp.14). But it has been seen that the change programs ultimately get dumped as their costs

outweigh the benefit. This is because a change in corporate control can lead to a discontinuation

in the policy of the management (RMIT University-a, n.d.).

Source: (Watson Wyatt, 2006).

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Nearly 20 percent of the respondents feel that such retirement schemes enable the company to

draw quality job applicants. However 31 percent feel that it has little impact on the company‟s

ability to attract quality job profiles (Watson Wyatt, 2006, pp. 15). These supplementary

retirement benefits help the company in retaining high performing workers according to 30

percent of the respondents. But close to this nearly 28 percent feel that this has little impact

(Watson Wyatt, 2006, pp. 15). This highlights that the changes in the perception of the company

towards the employees in terms of additional benefits of retirement does not show a strong

„commitment‟ (RMIT-c, n.d.). Despite the changes in the management behaviour in the wake of

ageing population and workforce the low percentage in favour of „employee retention‟ suggests

that even such changes are not enough to retain high performing workers.

Source: (Watson Wyatt, 2006).

These change programs must pass through a cost-benefit test as to whether the benefits of the

change program will justify the associated costs. As 30 percent of the respondents feel that the

changes in retirement benefits i.e. introduction of additional retirement benefits will enable the

company to retain quality workforce. This justifies the economic sustainability of the

supplementary benefits introduced by the companies.

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Global experience has highlighted that demand for health and medical services depends on size

of the overall population and proportion of the people aged 65 or more. The latter population

account for nearly 45 percent of the inpatients even though they represent merely 11 to 12

percent of the region‟s population. A study of the demographics shows a frightening trend of a

fast rising elderly population between the years 2006 and 2031. By 2031 nearly one out of four

people in Hong Kong are expected to reach the age of 65 or more. This will make it difficult for

the region to fund the medical system from revenue alone unless there is a sharp rise in the tax

rates (Ho, n.d. pp. 4). This can be associated with formative evaluation as it provides information

regarding the corrective action to be initiated to handle the issues relating to the anticipated rise

in the ageing population over the years (RMIT University-b, n.d.). This helps in identifying the

possible trouble spots so as to initiate action before the probable problems become real. Like

raising taxes will take care of the revenue needs of financing the rising medical and health

expenditures of the ageing population as the percentage of the aged population is expected to rise

significantly in the future.

Conclusion

From the above analysis it is clear if the policies remain unchanged the population ageing can

have an adverse impact on the standard of living and growth in Hong Kong. This will be

attenuated to an extent by higher productivity of workforce and migration of young skilled

workers from outside the region but it may not offset it completely.

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Reference

1. Admin & Civic Affairs, 2007. HK's ageing population trend continues. Available at:

2. http://sc.info.gov.hk/gb/www.news.gov.hk/en/category/administration/070222/html/0702

22en01005.htm [Accessed on July 7, 2010].

3. Earth Trends. No Date. Demographics and Health Indicators. Available at:

http://earthtrends.wri.org/text/population-health/country-profile-82.html [Accessed on

July 8, 2010].

4. Ho, L. No Date. Health Care For An Ageing Population – The Challenge Ahead for Hong

Kong. Hong Kong Policy Research Institute Ltd. Available at:

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e.pdf [Accessed on July 7, 2010]

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http://sc.info.gov.hk/gb/www.news.gov.hk/en/category/administration/070222/html/070222en01005.htm

http://earthtrends.wri.org/text/population-health/country-profile-82.html

http://www.hkpri.org.hk/passagesPDF/onNewspaper/2004/0405-HKGCC-Health%20Care-V2.pdf

http://www.hkpri.org.hk/passagesPDF/onNewspaper/2004/0405-HKGCC-Health%20Care-V2.pdf

http://www.industryhk.org/english/fp/fp_hki/files/0701cover-e.pdf

http://www.industryhk.org/english/fp/fp_hki/files/0701cover-e.pdf

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6. Leigh, L. 2006. Hong Kong Special Administrative Region: Macroeconomic Impact of

an Aging Population in a Highly Open Economy. IMF. Available at:

http://www.imf.org/external/pubs/ft/wp/2006/wp0687.pdf [Accessed on July 7, 2010].

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on July 7, 2010].

8. RMIT University-a. No date. Change failure: Economic sustainability. Sustaining

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9. RMIT University-b. No date. Formative Evaluation. Evaluating change.

10. RMIT-c. No date. Resistance to Commitment continuum. Resistance to change.

11. Watson Wyatt. 2006. Ageing Workforce, 2006. Available at:

http://www.watsonwyatt.com/asia-

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http://www.watsonwyatt.com/asia-pacific/localsites/hongkong/research/PDF_File/GS_AgeingWorkforce2006.pdf

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Bibliography

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http://www.state.gov/r/pa/ei/bgn/2747.html

Hong Kong’s Ageing Population and Workforce

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