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CONFIDENTIAL # 3
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5.
The above are the economic argument against immigration. They are of overriding importance although immigration does have a favourable (to employers) effect of easing labour shortages. What remains uncertain is the magnitude of influence induced by an indefinite continuation of a daily influx of 150 immigrants from China for permanent settlement in Hong Kong.
6.
A daily influx of 150 immigrants from China will increase the population in Hong Kong by over 50,000 per annum. Of these, about 40,000 are likely to be of working age, i.e. aged over 15 (re. Annex B of the Paper 20/81 for GSC on Legal Immigration from China). Assuming that 65% of these joined the labour force, the size of the labour force will increase by around 25,000 or, by around one percentage point per annum.
7.
But on top of this direct effect of immigration is the indirect effect through inducing a larger proportion of the existing population of working age to join the labour force (re. paragraph 1). The magnitude of this indirect effect is difficult to quantify but from recent experience, it appears that the effect on the growth of the labour force is more significant than the direct effect. In other words, with 150 " immigrants a day, ceteris paribus, the growth rate of the labour force would be over two percentage points higher than that arising from natural growth of the population. This means that the growth rate of the labour force would be more than twice as high as that which would arise from natural growth in the population. This is definitely too much for the economy to absorb in the long run.
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The main purpose of economic growth is to improve the standard of living of individuals by increasing their real income per head. One consequence of the rate of immigration outlined above could well be that the economy would continue to grow rapidly but that the growth rate of real income per head could fall and, in addition, such increases as there were could be distributed disproportionately to those who already have higher than average incomes. Neither of these developments is desirable in terms of either maintaining the willingness amongst workers to accept the falls in real income that have, in the past, been such valuable contributors to the adjustment of the economy's cost/ price structure during a world recession or in terms of maintaining social stability.
Economic Services Branch 7th September, 1981
CONFIDENTIAL #4