The View | The real reason why salaries are depressed in Hong Kong

Service industries have grown rapidly in Hong Kong. From 1980 to 2015, the real GDP share of the service sector grew from 75 per cent to 92.3 per cent. Meanwhile, the manufacturing of goods declined from 13.8 per cent to 1.5 per cent.

Most of this growth has been in producer services. During the same period, the value-added share of producer services increased from 31.2 per cent to 47.5 per cent, while consumption services’ value-added share increased from 34.8 per cent to 38.2 per cent. Government services declined from 8.9 per cent to 6.6 per cent.

The producer services sector in Hong Kong is a highly heterogeneous industry. Bankers, accountants, engineers, scientists, marketing, communications and transportation professionals provide a large proportion of high value-added producer services. Education and medical services are also inputs into the creation and maintenance of society’s stock of human capital. Without this expenditure, the productivity of any population would quickly decline.

Producer services are also the vehicle by which new technology is introduced into the goods and services production process. New technology can lead to lower production costs, the development of improved and new products, and new and more efficient methods for distributing goods and delivering services. These inputs account for the enormous growth of labour productivity in the production of goods and services.

The rapid expansion of this sector reflects a dynamic market process at work, where workers are reallocated from low-productivity manufacturing jobs to high-productivity service jobs. Fears of low productivity following deindustrialisation were unfounded because the rise of our producer services sector supported the growth of the manufacturing base across the border in the Chinese mainland.