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Post-Pandemic: Capital Immobility? Wage Stagnation? Recession?

Updated: Feb 11, 2021

In the past few months, the pandemic numbers in Hong Kong remained unstable, forcing multiple businesses to comply with the government’s policies to control the spread of the virus. Those rules include social distancing with at least 1 meter from others, a ban on gatherings of more than two people, and a total ban on restaurant dining, etc. These regulations have led to a dramatic decrease in the number of customer flow, whom often go out dining or shopping, causing most businesses to suffer from severe financial losses in the long term. Overall private consumption expenditure has dropped in Hong Kong, negatively impacting on the city’s gross domestic product (GDP), leading an open path towards the economic recession.

Businesses that contribute to the negative impact:

Modern Education, a famous tutorial service provider with numerous branches across Hong Kong, has been reported to have 6 of their branch schools to be closed down. Due to their serious financial loss, they have laid off many of their tutors to cut staffing costs. However, this did not help solve the problem at all. They were reported to have seriously delayed their pay to the rest of the tutors. Investors who have been considering investing in their company might have lost their confidence in having a great return on investment (ROI) in their future. When investors are not investing anymore, it reduces the GDP growth drastically, rolling deeper into the trap of recession. This is only one of the many cases that happened across Hong Kong, which proves the serious consequences of wage stagnation.

Besides, hundreds of restaurants were reported in the past month to have gone out of business every week. In the long term, firms were being pushed to have overbearing deficits on their balances, putting them out with other choices than to lay off workers. The mass increase in unemployment has created a wave of unemployed people, who live without a stream of income. Overall having a sudden collapse in the standard of living among these people, which may cause a rise in the risk of having a mental illness, an increase in crime rate, and protest in Hong Kong. Those who remain in their job positions will also stop spending their money on unnecessary items except emergency use as they do not think the future economy will go well. Hence, this can cause a spiral effect of capital immobility. Once the money is not flowing, it stops the whole circular flow of money and the country’s GDP will decline abruptly.

In my opinion, as there is hope for the first vaccine to be found in 2021, COVID-19 will no longer be seen as a long-run problem. The short term factors of unemployment and recession within the city and in the rest of the world will be slowly recovering. To speed up the recovering speed of economies, the government can implement some short term policies.

First, some people may argue that the government subsidizing money to citizens will be effective. As money flow in the economy is not smooth, subsidies can help smoothen it out. However, this may not be as effective because employed and unemployed people at this moment are worried about their future and will not spend their money easily. They will choose to put the money that is given to them in their savings for emergency usage in the future. Hence, consumer spending will not increase, despite people being given money by the government.

Allowance to firms given that worker’s wages are maintained at the same level and increase of government spending on infrastructures are the most direct ways to both help businesses and workers. It effectively controls the amount of money taken by the firms and workers separately when balances are checked.

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