Labor shortage/Wage growth in China

[bhchao]

Today's NYTimes talks about the labor shortage in China which is helping to spur wage growth. Companies are improving working conditions and compensation to attract and retain human capital because workers are "jumping from ship to ship".

It's also creating higher labor costs for foreign companies who have manufacturing hubs in China. Many of these companies are moving inland away from the coastal areas.

And rural workers are staying on the farm because of recent tax cuts, which means less migration from rural to urban areas.

Although this might lead to inflationary pressures, this could force companies to produce cost-effective products or increase their price-cost margins to compensate for rising wages.

http://www.nytimes.com/2006/04/03/business/03labor.html?ei=5087&en=a8d7fcab898e2b8e&ex=1144209600&adxnnl=1&adxnnlx=1144093483-w6FkSoeSemt7kF4GfpMelQ

Persistent labor shortages at hundreds of Chinese factories have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods.

The shortage of workers is pushing up wages and swelling the ranks of the country's middle class, and it could make Chinese-made products less of a bargain worldwide. International manufacturers are already talking about moving factories to lower-cost countries like Vietnam.

At the Well Brain factory here in one of China's special economic zones, the changes are clear. Over the last year, Well Brain, a midsize producer of small electric appliances like hair rollers, coffee makers and hot plates, has raised salaries, improved benefits and even dispatched a team of recruiters to find workers in the countryside.

That kind of behavior was unheard of as recently as three years ago, when millions of young people were still flooding into booming Shenzhen searching for any type of work.

A few years ago, "people would just show up at the door," said Liang Jian, the human resources manager at Well Brain. "Now we put up an ad looking for five people, and maybe one person shows up."

For all the complaints of factory owners, though, the situation has a silver lining for the members of the world's largest labor force. Economists say the shortages are spurring companies to improve labor conditions and to more aggressively recruit workers with incentives and benefits.

The changes also suggest that China may already be moving up the economic ladder, as workers see opportunities beyond simply being unskilled assemblers of the world's goods. Rising wages may also prompt Chinese consumers to start buying more products from other countries, helping to balance the nation's huge trade surpluses....

The lack of workers is most acute in two of the country's most powerful export regions: the Pearl River Delta, which feeds into Hong Kong, and the Yangtze River Delta, which funnels into the country's financial capital, Shanghai. Wages are rising significantly in both areas...

Government policy is playing a role in creating the coastal labor shortages. Trying to close the yawning income gap between the urban rich and the rural poor in China, the national government last year eliminated the agricultural tax, and it also stepped up efforts to develop local economies in poor, inland and western provinces, which have mostly been left behind.

Now, even remote areas are starting to develop — sprouting malls, housing projects, restaurants and infrastructure projects. These are creating jobs in the middle of the country and offering alternatives to many young workers who once were forced to travel thousands of miles for jobs on the coast....

Workers are sharing more information about factory conditions among friends and learning to bargain and leap from job to job. They are also increasingly ambitious.

"There's still a lot of cheap labor, but Chinese workers are getting skilled very quickly," said Ms. Hong at Goldman Sachs. "They are moving up the value chain faster than people expected."

Economists may continue to debate the severity of the shortages, but there is little doubt that the waves of migrants who once crowded into the booming coastal provinces are diminishing.

As a result, manufacturers are already starting to look for other places to produce goods.

"Many companies are already moving to Wuhan, Chongqing and Hunan," Ms. Hong said, ticking off the names of inland Chinese cities. "But Vietnam and Bangladesh are also benefiting. We're bullish on Vietnam."

[wushijiao]

I was about to post this bhchao!

Now, even remote areas are starting to develop — sprouting malls, housing projects, restaurants and infrastructure projects. These are creating jobs in the middle of the country and offering alternatives to many young workers who once were forced to travel thousands of miles for jobs on the coast....

In some ways, finally we can say ...然后,第二部分人富起来.

[yingguoguy]

The China Daily was reporting a couple of weeks ago that there would be 25 million new people looking for work next year, and only 11 million new jobs. I'm confused...

[stephanhodges]

They've probably been monitoring this forum, and counting how many of us are planning to be in China next year.

[roddy]

Yeah, I get 15Y for each one of you that takes an assembly line job in the Pearl River Delta.

There's two things going on as I understand it. Improving rural conditions and more alternative employment opportunities mean that less peasants are willing to go and work in factories. Meanwhile the massive expansion of higher education means that there's an oversupply of graduates looking for entry-level white-collar jobs.

There are two very distinct labor markets there, hence one suffering a lack of labor, and another a surplus.

In some ways, finally we can say ...然后,第二部分人富起来.

Wait! Say the factory owners! We aren't rich enough yet!