South China Morning Post
Entrepreneurial activity in HK will rebound as young people fill the gap of retiring baby boomers
Thirty years ago, people watched programmes produced by Television Broadcasts and listened to Canto-pop. These creative products were Hong Kong’s great exports to the Chinese-speaking world. Today, people prefer to watch imported South Korean television series. What has happened to Hong Kong’s creativity?
Many believe creativity in the entertainment industry here took a dive after the 1980s. Creativity is of course needed in all industries. It is an essential element in the formation of all new businesses and in fostering economic growth. So has the formation of new businesses slowed in Hong Kong?
There is some indirect evidence for this. The percentage of employers in the workforce (excluding domestic helpers) rose from 2.6 per cent in 1971 to a peak of 6.7 per cent in 1996 before falling to 4.8 per cent in 2011.
Five contributors have often been cited for entrepreneurial activity: education, market experience, property rent, skilled workforce and financing. But one that is often ignored is the age composition of the workforce.
A study of 83 countries published this year, by James Liang, Hui Wang and Edward Lazear, found a decrease in the median age by 3.5 years resulted in a 2.5 per cent rise in the entrepreneurship rate. This is a large effect, given that the average rate is only 6.1 per cent in these countries.
In the past 50 years, most of the developed world has experienced a dramatic demographic shift. For instance, Japan’s fertility rate dropped below the replacement level in the 1960s and is now 1.3, which means each generation will shrink by 40 per cent. Hong Kong’s fertility rate is even lower, at 1.2.
Entrepreneurial capability depends on creativity and business acumen. Creativity declines with age, but business skills increase with experience in high-level positions.
A young society provides more opportunities for the young and the most creative to acquire the skills necessary for entrepreneurship. Having too many older workers slows entrepreneurship. Not only are older workers less innovative, but when they occupy key positions, they reduce the opportunities for younger workers to accumulate business skills.
Hong Kong’s demographic structure is unique because a large proportion of its population arrived in the post-war years. The subsequent baby boom greatly expanded the young workforce beginning in the 1960s and was a major cause of the rise of entrepreneurial activity in the 1970s and 1980s.
But the precipitous drop in the fertility rate since then has increased the median age of the population in the 20-64 bracket from 21 in 1971 to 41 in 2011. This has been an important cause of the decline in entrepreneurial activity since the 1990s.
That trend will now end, however, because the baby-boom generation is starting to retire. The chart shows the median age of the workforce is projected to stop rising and level out. And the percentage of employers, based on sex, schooling and age composition of the workforce, is projected to increase to 7 per cent by 2025 and maintain at that level.
Many young people in Hong Kong today feel their job and upward mobility opportunities are limited, but the future is looking brighter.
There is a temptation in Hong Kong to postpone the retirement age.
Some things can be done to help, though. Hong Kong’s labour market is tight and there is a considerable temptation to postpone the retirement age, but a better solution is to invest in more education, introduce innovative financing arrangements to foster start-ups, increase the supply of space at affordable rents and systematically tap the wisdom of the retired to provide advice and training for start-ups.
A huge opportunity also beckons in the Pearl River Delta – the median age of Shenzhen’s official population of 8.38 million between the ages of 20-64 is only 28.
I am optimistic for the future of Hong Kong’s young people because of the return of positive demographics in the workforce.
Richard Wong Yue-chim is Philip Wong Kennedy Wong Professor in Political Economy at the University of Hong Kong