David M. Hart and Fangmeng Tian School of Public Policy, George Mason University

1. Talent for a Knowledge-Based and Innovation-Oriented Economy:Hong Kong’s Challenges and Opportunities David M. Hart and Fangmeng Tian School of Public Policy, George Mason University Hong Kong Innovation Project Conference 10 January 2009

2. Presentation Outline • Empirical context and theoretical background • Human resource indicators: • Undergraduate degrees • S&T undergraduate degrees • High-occupational status • R&D and IT workforce • Policy options

3. Part I. Empirical Context and Theoretical Background

4. Empirical Context • Hong Kong’s long-term economic growth • Rapidly changing regional/global environment: • Mainland China • East Asia • Global business restructuring • Intensifying international competition for talent • Hong Kong demographics and location

5. Theory: Human Capital and Growth “Supply-push” “Demand-pull” Growth of Innovation-oriented industries Specialized human capital (S&T fields) High-skill migration Industrial clustering

6. Part II. Human Resource Indicators Undergraduate degrees S&T undergraduate degrees High-occupational status R&D and IT workforce

7. Data Sources • Hong Kong Census • General Household Survey • Hong Kong as a Knowledge-Based Economy • Hong Kong as an Information Society • R&D Statistics of Hong Kong • UGC and Immigration Department statistics • Personal interviews • International sources

8. Undergraduate Degrees, All - Supply • 1996-2006: • Total increase: 70% • Annual growth rate: 5.5% • Doubling time: 13 years • Lags behind other “global cities” (NY, London, Tokyo) • Comparable to regional centers (Singapore, Shanghai)

9. 20,000 local graduates 10,000 stay in HK but do not work. Total flow 48,000 degree holders 16,500 GEP 26,000 join HK labor force. 5,000 ASMTP 12,000 leave HK 6,500 returnees Undergraduate Degrees, All – Estimated Flows, 2006

10. Undergraduate Degrees, All - Demand Employment has grown steadily. Unemployment rate has trended down recently. Income gap between degree attendees and those with less education widened considerably. Earned income of highly-educated peaked in 2001.

11. S&T Undergraduate Degrees - Supply • 1996-2006: • Total increase: 62% • Annual growth rate: 5% • Doubling time: 14 years International comparisons are only suggestive due to limited data collection, definitional differences, and varying dates.

12. S&T Degrees: Flows and Demand • Estimated flow of S&T degree holders: • Annual net inflow: 9300 • UGC graduates: 8600 • Returnees: 2500 • Foreign-born: 3000 • Departures or did not work in HK: 4800? • Labor Market: • Employment growth of S&T degree holders lags all degree holders. • Salaries peaked in 2000 and remained about 10% below peak in 2006, lagging other fields. • Interviews point to possible shortages in specific sub-disciplines.

13. High Occupational Status (HOS) – Supply Definition: Managers and administrators, professionals, and associate professionals • 1996-2006: • Total increase: 25% • Annual growth rate: 2.2% • Doubling time: 30 years • 43% hold undergraduate degrees in 2006 vs. 33% in 1996 • 80% of growth among associate professionals • Number of managers and administrators shrank • International comparisons are slightly more favorable than for education.

14. HOS: Flows and Demand • Growth in the HOS population is not even over time. • Cumulative growth is almost entirely among the Hong Kong-born. • Only about 6% of holders of HOS positions lived outside HK in the five years prior to 2001 and 2006. • Salaries overall rose fairly steadily, but managers and administrators did much better than professionals and associate professionals.

15. R&D Workforce: Supply Note: no official estimates of the S&T working population comparable to U.S. • 1998-2006: • Total increase: 154% • Annual growth rate: 12% • Doubling time: 6 years. • Especially strong in the business sector: • 10,000 new R&D jobs • 350%+ growth • But from a low base…HK has relatively low R&D share of workforce.

16. R&D Workforce: Flows and Demand • In-migration plays a small role: • The vast majority of R&D positions are filled by HK-born permanent residents. • About 1/3 hold their highest degrees from non-local universities. • About 10% reported living outside HK five years earlier. • Local universities doubled the number of graduate degrees awarded in S&T fields over the past decade. • The market for R&D talent is fairly tight: • A significant number of establishments identified lack of qualified personnel as an important barrier to innovation. • But salaries seem to have declined between 2001 and 2006.

17. High-Skill IT Workforce: Supply • 1996-2000: 70% growth • 2000-2006: 8% decline • Many more HK residents acquired advanced IT/computer training than hold high-skill IT jobs. • We did not find comparable international data for this indicator. Source: Hong Kong as a Knowledge-based Economy (2007)

18. High-Skill IT Workforce: Flows and Demand • Only about half hold undergraduate degrees. • In-migration plays a small role: • Well under 5% are not permanent residents. • About a third of those who hold a degree received their highest degree abroad. • Incomes declined between 2001 and 2006.

19. HR Indicators: General Observations (1) • Hong Kong has been accumulating human capital, both general and specialized to science and technology, at a relatively rapid rate in the past decade. • The demand for this talent kept pace reasonably well overall, although income data suggest some softness in recent years. • There is evidence of a talent shortage only in a few specific categories, notably (in our review) for managerial, executive and R&D positions and (anecdotally) for certain engineering specialties (which our data are too coarse to confirm).

20. HR Indicators: General Observations (2) • HK’s talent pool still trails the leading “global cities” with which it is often compared. • HK appears to be keeping up, broadly speaking, with its competitors in East Asia, but these competitors are developing quite rapidly themselves.

21. Part III. Policy Options

22. Policy Options: General Observations (1) • Preface: investing in higher education has value beyond the economic context. • The SAR government has paid attention to HR and should continue to do so. • Maintaining the momentum of the past decade is likely to be challenging, and these challenges would be heightened if the government seeks to accelerate the pace.

23. Policy Options: General Observations (2) • HK will probably need to find ways to reach out more assertively to the rest of the world for talent, especially to mainland China. • HR supply policies should be embedded in broader packages that also incorporate demand considerations, especially for specialized fields. • Matching HR supply and demand may require stronger central coordination within the SAR govt.

24. Policy Options: Higher Education (UGC) • Expand undergraduate programs in UGC-funded institutions: • <1% annual growth over the past decade. • An additional 4K degrees per year by 2020 would require growth that is 3x as fast. • Enroll more mainland and foreign students in these programs: • Current share is about 10%. • This share may need to triple or quadruple. • Mainland students may require financial support, which might be linked to post-graduation work in HK. • Continue to allow disciplinary composition to be demand-driven.

25. Policy Options: Higher Education (Non-UGC) • Facilitate capacity expansion and regulatory framework for “top up” programs for degree completion: • “Phenomenal” growth in self-financed sub-degrees. • Not necessarily perceived to be a terminal degree. • Accommodates non-traditional students.

26. Policy Options: Immigration (ROW) • Develop a diaspora “policy”: • 290K skilled HK expatriates in OECD countries • Maintain GEP: • Demand-driven, employer-led • Address related quality of life issues? • Promote HK to potential skilled immigrants through Invest HK, rather than Immigration Dept.?

27. Policy Options: Immigration (mainland) • Continue to expand ASMTP incrementally: • Roughly ¼ the size of GEP now • Demand-driven • Implement and promote IANG and related programs: • Prior experience abroad or HK education enhance odds of successful integration • Demand-driven • Continue to refine and promote QMAS: • Link to broader economic strategy • Delegate discretion to outside advisors

28. Conclusions • A sound basis has been laid for continued movement into the knowledge-based and innovation-oriented economy: • Excellent higher education system • Nascent achievements in skilled immigration policy • Accelerating the pace of human capital formation may be a crucial part of a broader economic development strategy: • Address institutional and demographic constraints • Bear demand factors in mind

29. Thank you! • Contact: • dhart@gmu.edu • ftian@gmu.edu