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G.F. 326
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CONFIDENTIAL ##
Annex B
An assessment of the economic effect on Hong Kong of the indefinite continuation of a daily influx of 150 immigrants from China for permanent settlement
The economic implications of immigration have been repeatedly spelt out in the Government's economic reports and the Financial Secretary's speeches delivered to the public. Besides increasing the supply of labour directly, the presence of immigrants, legal or illegal, has the effect of increasing unemployment and constraining the rate of increase in wage rates. In consequence, indirectly immigrants induce a larger proportion of the. population of working age to participate in the labour force so as to maintain or to improve the existing standards of living, thereby further increasing the supply of labour.
2.
A higher growth rate of the size of the labour force than there would otherwise have been, as a result of immigration, will restrain the rate of increase in wages and may also increase unemployment. The consequent slow down in the rate of increase in wages deprives the local labour force of the opportunity to enjoy the full benefits of economic growth. The economy has been growing rapidly in the past few years in real terms. By contrast, however, the increase in wage rates in the manufacturing sector, where a large proportion "of the immigrants find employment, has only been sufficient to keep up with inflation in the past two years. It can be argued that one consequence of such a situation is a higher risk of social unrest. This is particularly so given that the rate of inflation has been high and that inflation itself tends to have an uneven impact on the population, implying that some individuals may have not been doing satisfactorily despite rapid economic growth generally.
3.
By making labour available at wages lower than there would have been otherwise, immigration reduces incentives for industrialists to invest in more technologically advanced and labour-saving capital equipment. This has adverse implications on the growth rate of the productivity of the labour force and hence on the growth potential of the economy.
4.
Immigration has also imposed extra burden on the public sector in the provision of services for the community generally. The effect of the thinning out of the "social wage" aimed at the lower income groups provided through public expenditure has been particularly significant.
15.
CONFIDENTIAL #5
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