Hong Kong’s services industries are ill-equipped to benefit from an expected increase in business as the city reopens because they are struggling to convince workers to return.

Restaurant owner Yeung is one of them: He’s finding it hard to find staff, especially chefs, after losing workers during the Covid-induced downturn.

“My chefs, if they quit now, they can find a job the next day. It’s hard to keep them here,” said Yeung, 30, who preferred not to use his full name. He added that at one point he had to cut wages for his employees by 30-40%.

Hong Kong is banking on an influx of visitors to kickstart an economy that likely contracted 3% last year. Yet the legacy of border closures and strict social distancing rules resulted in a manpower shortage as workers left tourism-related industries.

Hiring has been tricky as prospective workers switch to industries they feel are less volatile, or as they leave the city altogether.

Even if companies resolve their short-term hiring challenges, economists warn that the long-term outlook is grim.

“Several structural factors are at play, such as a shrinking local workforce, current labor importation policy, and the capacity to upskill and retrain local workers,” said Lloyd Chan, senior economist at Oxford Economics Ltd. Even with an open border, he added, those issues aren’t likely to be resolved soon.

Job Struggles

The immediate crunch stems from a tough few years for Hong Kong, where tourism-dependent industries were pummeled first by anti-government protests in 2019 and then by Covid curbs that shut out visitors for years.

Many hotels and restaurants were forced to shorten hours for workers, reduce pay, let employees go or shutter entirely as business suffered. The overall jobless rate hit 5.4% last April, the highest in nearly a year, as the city was slammed by a brutal Covid wave.

While the unemployment rate is still higher than it was in 2018, it has moderated in recent months. The rate dropped last month to 3.5%, the Census and Statistics Department said Thursday. That’s the lowest rate since January 2020, the start of the pandemic.

But the improvement hasn’t necessarily translated into good news for services industries, as former employees see little incentive to return.

“I think I won’t go back to the industry anymore,” said 28-year-old Lau, who quit her job as a telephone operator for a luxury hotel company early last year because of its vaccination policy.

Since then, she’s been working as an office administrator for a property management company.

“The benefits, the salary, and the working hours are much better than the hospitality industry,” she said.

Concerns about job security continue to be an issue for former hospitality workers, according to Winnie Chan, association manager of the Federation of Hong Kong Hotel Owners.

“Many do the same operational jobs just in other fields, often viewing those industries as more stable so they won’t come back,” she said.

Data show that even as the jobs returned, they aren’t being filled.

Moovup, a company that specializes in advertising jobs for front-line industries, had about 45,000 job listings in October, more than double the number for March.

“With an abundant choice of work opportunities, front-line workers currently have more bargaining powers, unlike during the early stages of Covid in 2020,” said Geoffrey Yau, co-founder and CEO of Moovup.

That has also translated into an increase in wages. The overall monthly starting salary for a full-time worker was HK$15,000 ($1,916.3) in December, 7.1% higher than it was at the start of the year, Moovup data show.

A continued increase in costs would hurt profit margins for employers, Yau said.

Aging Populace

In the short-term, the government should set up a fund to help the hard-hit tourism industry with covering expenses and staff-related expenditure, said Perry Yiu, the city’s tourism lawmaker.

An aging population and exodus of younger people is exacerbating the tightness in the job market.

The number of residents aged 29 and below dropped to 24.1% of the total population midway through last year, from 27.8% four years ago, according to data by Hong Kong’s Census and Statistics Department. The percentage of residents aged 65 or above increased to 20.9% from 17%.

Women having fewer children mean the situation is likely to worsen over time unless Hong Kong can import more labor. The birth rate in 2021 was the lowest on record going back to 1971.

At the same time, the city’s population fell by about 216,000, or 2.8%, to roughly 7.3 million since 2020.

Since August 2018, Hong Kong’s labor force has dropped about 5% to 3.8 million people, according to the latest official figures.

Finding Solutions

One answer to the city’s aging population is to encourage those aged 65 and older is to participate longer, said Aries Wong, an expert on Hong Kong’s economy at Hong Kong Baptist University. “Measures that promote digitalization, automation, etc and thus productivity could also help alleviate the negative effect of those industries affected by higher wages.”

Giving companies more incentives to add internship positions and practicum hours are other longer-term solutions, said the lawmaker Yiu. Another option is importing more labor from the mainland and overseas.

Businesses are allowed to import workers to fill jobs they face “genuine difficulties” recruiting for locally, according to city labor rules. But the number is small, with about 3,000 low-skilled workers having been imported to the city in 2021. That’s about 1% of the number of similar foreign workers that rival Singapore brought in to fill labor-intensive jobs like construction, or other semi-skilled workers.

The solution to the city’s labor market woes “would depend on the extent Hong Kong can attract non-local skilled workers,” said Vera Yuen, economic lecturer at the University of Hong Kong’s Business School.

Rolling out policies or initiatives to increase the supply of low-skilled workers isn’t a government priority, according to a government official who requested anonymity in order to speak freely.

Asked about the manpower issues, a government spokesperson told Bloomberg News that the challenges were “broad based,” and that “many sectors” are facing shortages.

“We are prepared to implement measures including provision of accommodation support for strategic industries” like innovation and technology, the spokesperson said, adding that the government would listen to the views of and “put forward solutions having regard to the situation of individual sectors.”

Still, business owners are betting a rise in mainland tourists will boost the industries long-term growth prospects and convince enough workers that the sector is stable again.

Immigration data show the number of visitors from mainland China jumped to about 10,000 per day as of Jan. 17 from December’s average of around 2,000. That’s still just 8% of the daily average in 2019.

“If business picks up, more people will be attracted back to our field,” said Chan from the hotel owners federation. “They’ll foresee that the future of the industry is good, that we can raise the wages and maybe they will come back to our field.”

The risk for workers to return may be too great. Yeung plans to close his restaurant soon because business has yet to improve.

“I just don’t see the business getting better in six-to-eight months and that for a restaurant is a very long timeline for recovery,” Yeung said. “The numbers haven’t added up.”