Opinion | The impacts on unemployment rate in HK caused by COVID-19

By Dr. Karl So, Doctorate of Business Administration

We are less than 3 weeks away from the last quarter of 2020, and people start to make a joke by saying it is already a win if we can live through to the end of the year. It sounds sarcastic, but indeed, lives have been taken, families have been broken down, businesses had been closed. The cost we are paying is hard to quantify into any values as it has already deep down into our society and minds. Unemployment is one of the biggest issues in any economy. The United States has the highest confirmed case and the US Congressional Budget Office predicts 15% of unemployment by the end of this year.

In the view of macroeconomics, the number one damage to the Hong Kong economy by COVID-19 is the increase in the unemployment rate. HK's unemployment rate for 2017 was 3.09% and in 2018 was as low as 2.9%. Unfortunately, due to the social unrest, the unemployment rate in 2019 was raised to 3.63% with a high reduction in Mainland China Visitors (MCV). When it comes to the first half of 2020, the unemployment rate had already raised to 6.3%, comparing to SARS at 7.3% in 2003. The increase in the unemployment rate has cost our society more than just financially, unemployed citizens not only lose income but also face challenges to their physical and mental health. The society is also paying a cost including higher crime rates and a reduced rate of volunteerism. The government is then paying for higher social welfare while Gross Domestic Production (GDP) dropped significantly.

In the view of microeconomics, individuals are changing their spending behaviors especially standard of livings and savings rate. Spending becomes skeptical and changing from spending for a desire to spending on necessity. The standard of living decreases and individuals will not easily raise that again. The decrease in demand for further education or investment in training will have a longer effect in the future, too. When there is a decline in the prosperity of spending, the multiplier of value going back into society will decline at the same rate, too.

In the view of psychology, COVID-19 brings elevated rates of stress and anxiety to the community. Continuing to keep social distances, quarantine, and even lockdown will lead to loneliness and depression, leading to more negative effects coming after such as alcohol, drug use, and a rise in suicidal behaviors. Prolonged unemployment harms mental health and can worsen physical health and shorten lifespans.

The HK government has been addressing COVID-19 measures according to the situation on a daily bases, by slowly relaxing entertainment while encouraging social distances. At the same time, it launched a massive Universal Community Test Program (UCTP), with over 1.3m citizens registered as of Sept. 10. These measures are the first step to bring society confidence that COVID-19 is being controlled, and to start building up the healthy psychology for individuals preparing to get back to normal lives. Businesses can resume and prepare for growth, and hiring can also be resume accordingly. The HK government had issued policies such as giving away HK$10,000 to citizens and the Employment Support Scheme, to gradually increase the individuals' prosperity of spending, so we can gradually increase in the employment rate.

The prolonged unemployment rate will be harming the HK economy deeper than we thought, and everyone wants to get through it as soon as possible. The Chinese government had got COVID-19 under control, with interprovincial traveling resumed, factories and businesses re-opened. The HK government has policies in place when COVID-19 is under control, and sooner we will be joining mainland China's business rebound together.

The views do not necessarily reflect those of DotDotNews.