Aging Working Force: Raising Retirement Age
Recently, the birth rate is decreasing rapidly in Hong Kong. We are facing an ageing
population problem and the labor force structure is imbalance. WhatвЂ™s more, the
governmentвЂ™s retirement plan is a failure as it does not provide enough financial
assistance to them, both by publicly and privately managed plan. The elderly cannot afford
the living after retirement by their private savings and insurance.
We strongly suggest the government to set a clear regulation and extending the retirement
age to remedy the problem. We will investigate other countries which are facing the same
ageing problem and their decisions on extending the retirement age. Furthermore, there are
lots of other ways to solve the problem. We will discuss three of them and compare the
benefits and drawbacks on each alternative.
Reason of the proposal
Hong Kong has one of the worldвЂ™s lowest birth ratesвЂ”0.9 per woman of child-bearing
age, far below the replacement rate of 2.1. The city’s elderly dependency ratio is set to
rise from 161 per 1,000 in 2003 to 428 per 1,000 in 2033. That means more elderly
dependents will have to be supported by a smaller working population. Look in the past; we
could see that there is a trend of increasing dependency ratio. According to the report of
demographic trends in Hong Kong, the Elderly dependency ratio is increasing rapidly from
97 to 168 during 1981 to 2006. The median age is increasing from 26.3 to 39.6. However,
the percentage of Aged 0вЂ“14 is decreasing from 24.6 to 13.7. These figures suggest that
the population is aging, together with a low birth rate the dependency is increasing in
Hong Kong which creates a burden to the working force.
In Figure X (Appendix 1), we can see that the longest bars of the graph is group 45-54,
which has a population of 1400000. After 20 years this group of people will be supported
by the people in the categories with shorter bars of which the gap in between is quite
big. The difference between the population of the age group of 45-54 and 15-24 is nearly
350000. That means after twenty years, it will be harder for the major working labor force
income to support the elderly living. Also, in the coming future, we believe that the
shape of the graph will become an up-side-down triangle instead of a bell shape because of
the low birth rate and death rate. This indicates that the dependency ratio i.e. pressure
on the working force will be higher.
However, we believe that the grey population can provide productivity to the society as
well. From the data of labor force, we can see that the age group of 45-64 is growing from
32%to 38% from 2005 to 2010. Also, the labor force participation rate of age group 45-64
and 65 or above is increasing these years. This indicates the elder workers are becoming
more important to Hong KongвЂ™s development, i.e. arising retirement age should be able to
encourage a higher GDP as well. Figure y (Appendix 2) shows that the GDP is increasing in
a slow manner. We believed that one reason would be lack of working force to boost up the
figures. This would definitely affect the development on technology and other aspects such
as education and social. From the survey of the government, we can see that nearly 90% of
persons in the target group view that the stability of performance of relatively elder
employees is stable and does not have any difference as compared to those of other ages.
They even think that elder employees have higher performance on the concentration on work.
Furthermore, nearly 40% of persons in the target group perceived that working experience
is the main criterion considered by employers in employment related issues while only
around 6% of them think that age is a main criterion in employment related issues. The
majority have a belief that age does not affect employeesвЂ™ performances. Therefore,
raising the retirement age can help solving the problem of high dependency ratio and
provide extra productivity to the society and hence contribute to higher GDP.
Loophole of Elderly Retirement Policies introduced by Government
Ageing population with low birth rate is not the issue only happens in Hong Kong
currently. In fact, in 1994, the World Bank published the report “Averting the Old-Age
Crisis: Policies to Protect the Old and Promote Growth”, in which a three-pillar approach
is introduced to protection for the aged was put forward. The three pillars were:
1. A publicly managed, tax-financed social safety net;
2. A mandatory, privately managed, fully funded contribution scheme;
3. Voluntary savings and insurance.
In order to prove the necessity of our arguments, we would respectively take a deep look
on each of the pillars that Hong Kong government is working on.
1. Voluntary savings and insurance
From David Pierson, Los Angeles Times, August 16, 2011, personal consumption accounts for
about 40 percent of GDP in China, compared with about 70 percent in the U.S. Retrospect to
the past, Chinese relatively spend less future money than western people are and well plan
for their life saving. Nevertheless, is it also suitable enough in Hong Kong? From the
data collected by HKIFA in 2007(Appendix 3, graph 1-3), almost 60% of all have not made
any planning for their retired lives and approximately 70% people find no way in public to
develop their scheme. Apparently we could reach the conclusion that most of the Hong Kong
resident is still lack of a sense of money saving and planning for their retirement lives.
2. Mandatory funded contribution scheme
Hong Kong Government carried out MPF since December 2000. They introduced it with great
expectations by its well-planned structure and rules. Nevertheless, most MPF fund
providers have only cut fees for their capital preservation or money market type funds.
The fee-cutting war has not yet expanded to the more actively MANAGED FUNDS, which means
that 80% of the invested assets of MPF scheme members are still paying 2-3% management
fees. The fund managers argue that, of course, they have to cover the cost of actively
managing the funds. Some of the managers with a small share of the MPF market will indeed
be struggling to make the business pay.
With the demand for lower cost products, it is perhaps surprising that there are so few
index funds available within MPF. This will remain as an issue and is bound in with the
whole debate about education. Investors need to understand what they are paying for.вЂќ
The issue of management fees is only half the story. If the overall fee is a little over
2%, a third of that will go the INVESTMENT MANAGER and close to 50% goes to the trustee.
Moreover, in accordance with the HKIFA study in 2007(Appendix 3 graph 4), observation we
obtained prove the enormous shortages of MPF system.
3. Social safety net
According to Social Security Allowance (SSA) Scheme in which Hong Kong government policy
claimed supporting the elders, people who over 65 could apply for the Old Age Allowance
which usually called вЂњFruit MoneyвЂќ, they could obtain $1035 HK dollars per month. Take
a deeper probe on this, the definition of вЂњelderlyвЂќ government has set is 65 or above,
however, there is a gap between retirement age and welfare condition, which is five years.
So why does the government force those elderly to retire even they are possibly lack of
reserve to handle living expense, and more ironically, they get no support from the
community until five years later.
Furthermore, if we compare with US residents (Appendix 3 graph 5), American government
successfully guaranteed the elderly will be supported after retirement by providing mature
welfare policy. In contrast, most of the Hong Kong elderly solely rely and create burden
on their families.
All of these present an evidence of the failure government made towards guaranteeing Hong
Kong resident retiring lifeвЂ™s quality.
Alternative methods to raising retirement age
1. Encourage foreign women to give birth in Hong Kong
As people born in Hong Kong will have the right to live in Hong Kong, attracting people
from Mainland to give birth can help to increase the number of younger generation and
therefore the working population in the future.
However this method may not work and be ineffective due to the possible problems caused.
The following problems arise and may have affected both local and Mainland people in
different ways, making this alternative difficult to promote. First of all, there is very
limited hospital quota for pregnant women across Hong Kong, with only 3,400 quotas next
year. Since there were 3,487 women from Mainland who has a husband in Hong Kong, promoting
this alternative further will cause an increase in number of their segment. Moreover,
there would not be enough places for local people. Due to this reason, a second problem
would be caused which is rise in hospital price. It is because the birth-giving quotas
have been extremely competitive so it would greatly increases the pressure.
In 2007, public hospitals increased their fee to private hospitalsвЂ™ standards in order
to discourage the number of women coming from mainland. However it had not made a huge
impact on them but Hong Kong people, who had become more reluctant to give birth as they
cannot afford to pay the fee for public hospitals, which the price is very closed to the
standards of the private hospitals, (Appendix 4) which provide better services such as
having a specific doctor to follow up from start to end, a proper room and staff to take
care of the new born babies. This has even further put local people off from giving birth
as they would have to pay far more than what they can afford, and will worsen the low
birth rate issue, which would be very contradictive. There is also a research done by the
Democratic Party in Hong Kong. They found that 58.7% of the local interviewees do not
welcome babies being born with both parents from mainland. Promoting this alternative may
cause dissatisfaction from the local, which may likely to create conflict in the society,
and newly-married couple may not want or able to give birth due to the higher prices.
The Department of Statistics in Hong Kong estimated that there would be from 2010 to 2039,
women from Mainland who would give birth in Hong Kong would increase to 40,000 to 50,000,
and 34,000 to 43,000 of these people are non-permanent residents, and the government would
need to consider policies and services for these children. As the number of women from
Mainland is difficult to control; this alternative may have a negative impact on both
women from Mainland and Hong Kong such as other society problems like limited resources,
education and conflicts as they will be competing again for their children; and also
contradictive to what the hospitals intended to do when they raised their hospital fees.
2. Encourage more married women (currently housewives) to work
A common theory in modern economics claims that the rise of women participating in the US
labor force in the late 1960s was due to the introduction of a new contraceptive
technology, BIRTH CONTROL PILLS, and the adjustment of age of majority laws. The use of
birth control gave women the flexibility of opting to invest and advance their career
while maintaining a relationship. Encouraging more housewives to (or back to) work may
help to increase the number of workforce in Hong Kong as the female population in Hong
Kong is increasing. According to the Statistics Department of Hong Kong, there are
1,648,800 women working, which is 46.9% of the working population. Even though the number
of working women has increased, but married womenвЂ™s contribution to labor is still lower
than those unmarried ones. As female population is increasing and the married women take a
large proportion of it, it may be more helpful to encourage them back to work in order to
increase the number of working population rather than rising the retirement age. In
accordance with the table (Appendix 5, Research done by the Statistics Dept of Hong Kong
in 2009) , we can see that those married working women who are aged 40 years and above
only takes about 38.2% of the female population; and there are still many married women
available to work.
However, according to the data researched by the Statistics Department of Hong Kong in
2008, jobs with more female contribution, such as nurses in private elderly centers,
receive $18-21 for an hour as average, and working for 12 hours per day, their average
monthly income would only be $6,258, because of job discrimination. The married women
cannot support and afford such high prices in the society as they are the main economic
sources of their families.
Another problem is that long-time work takes about 19.8% of the working women, which means
1/5 women work for at least 10 hours a day. This has put burden on working mothers, when
the relationship between their children and them may be worsen due to this reason. It
would be difficult to encourage them to get back to work, and it may have caused other
social and family problems.
1/4 interviewed women from the research done on evaluation of the gender equity in jobs
conducted by the WomenвЂ™s Commission in Hong Kong in February 2011 and 70% of the
interviewees think that women getting discriminated from their jobs are still common. This
may reduce the wish for women to work, especially after getting married when they are
likely to be discriminated if they have to take care of their family.
Moreover, 1/4 of the interviewed women stated that they do not want a very successful
development in their career, and 40% of these women are married with children; and 20% of
the married men stated the same due to the family responsibilities. It may be difficult in
encouraging more married women to work.
3. Attract other foreign workers