The COVID pandemic ravaged the global and local economy in 2020, creating an unemployment crisis unseen in recent history. Its effect is especially palpable in youth unemployment. MWYO released a report today, titled “The road to recovery: Hong Kong youth unemployment forecast 2021-22”.
By constructing multivariate regression models to predict the trajectory of the unemployment rate for those aged 20-29 and the overall unemployment rate, we have made several key observations:
- 1. An epidemic affects youth unemployment much more than overall unemployment, i.e. more than double by magnitude. The main implication is that the Government should allocate more resources on alleviating youth unemployment during such economic downturns, as they are more vulnerable.
- 2. Youth unemployment in Hong Kong has a strong seasonal effect and a cyclical pattern. It usually peaks at Q3, when most graduates finish school and enter the job market. It then drops sharply in Q4 as most of them would gradually find work. The implication is that when an upward seasonal effect in Q3 is compounded by effects of an epidemic or economic recession, the increase in youth unemployment would be amplified. Rolling out relief measures at the right time would be more fruitful and necessary.
- 3. It is highly unlikely that youth unemployment and overall unemployment will return to pre-COVID levels within this year. In our base case scenario, even if the epidemic effect would no longer present in 4Q2021, the unemployment rate for those aged 20-29 would remain at a high level of 11.3%, even with the downward Q4 seasonal effect. For comparison, the unemployment rate for those aged 20-29 in 4Q2019 (one quarter before the pandemic struck) was 5.9% only.
Figure 1: 2021-22 forecast of unemployment rate for those aged 20-29 and overall unemployment rate
Note: Forecast figures are indicated in different coloured lines. Unemployment rate for those aged 20-29 is not seasonally adjusted, while overall unemployment rate is seasonally adjusted.
We suggest the Government take the following measures:
- 1. Providing training and development
- a. Raising the amount of subsidy under the Continuing Education Fund
- b. Subsidising firms offering internship positions
- 2. Reducing financial burden
- a. Reducing the loan repayment burden on tertiary graduates
- b. Providing temporary unemployment benefits