CONFIDENTIAL
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existence of a CPF, its existence should not significantly affect either labour mobility or the willingness of entrepreneurs to invest.
18.
to
Nor, in the long-term, should introduction of a CPF result in employers' being forced to raise wages offset the lower take-home pay which would result from enforced CPF contributions. This may happen where collective wage bargaining is involved. But in Hong Kong, where wage rates are largely determined by supply and demand in the labour market, although pressure might be exerted, especially in the period immediately after the introduction of a CPF, the eventual effect on wages may not be very significant.
19.
in
in
CP F
To the extent that employees did succeed bargaining for higher wage levels to offset their contribution, employers would, in effect, be responsible for both the employer's contribution and the employee's contribution. The increased cost to employers would in most cases adversely affect an industry's profitability or the competitiveness of its exports in the short term. In the longer term, it is likely that various adjustments would be made by employers to reduce the cost impact, e.g. by reducing the rate of subsequent wage increases or by scaling back the number of employees. Eventually, in either case, market forces would tend to reduce real wages sufficiently to restore full employment.
20.
It must be stressed that the above discussion relates to the long term. Even in a labour market as flexible as Hong Kong's the disruption caused by the introduction of a CPF is likely to be very considerable. To the extent that the necessary adjustments to wage rates do take place, this would be over a long period of years and in the interim businesses would suffer and jobs would be lost.
Macroeconomic implications
21.
not
The effect that a CPF would have on
CPF would have on the pattern of private savings and consumption in Hong Kong is clear. It depends on the size of the flows
flows into and out of the fund and the effect such flows have on the economic behaviour of those contributing to and benefiting from the fund.
22.
During the initial period of operation of a CPF, the number of contributors would greatly outnumber the number of beneficiaries, given that it is only past contributors who can benefit and then
then only in proportion to their contributions. Thus, there would be a heavy net
CONFIDENTIAL