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Cheap labor a thing of the past
June 20, 2011, Monday
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UNTIL recently, China's competitiveness was based on one key ingredient: an abundance of cheap, low-skilled labor. That's no longer assured.
Awkward surpluses and shortages of workers are now cropping up in unexpected parts of the economy.
Low-skilled rural workers willing to migrate to industrializing parts of the country are increasingly in short supply, while millions of university graduates compete tooth and nail for scarce white-collar jobs, often accepting lower pay and fewer benefits than their degrees would have earned them just a few years ago.
It's hard for any analysis of China's labor market not to fixate on the vast numbers. In 2010, for example, around seven million students graduated from universities, of which about one-fifth could not find jobs, according to a report by the China Monitoring Center for Labor Market Information. At the same time, demand for China's hundreds of millions of blue-collar workers exceeded supply for the first time in 10 years.
"There has indeed been a sharp lack of migrant workers after the last Spring Festival [marking the beginning of the Chinese new year in early February] - many went home for the holidays and simply did not come back to work," says Yuan Zhigang, dean of Fudan University's School of Economics and director of the Employment and Social Protection Research Center.
One of the reasons why, he says, is the growing reluctance among migrant workers to accept their old meager pay packages at a time when the country's economy is booming.
What's more, he adds, many workers are able to find work closer to their homes, since rural central and western China are beginning to industrialize and catch up economically with other parts of the country. That's an attractive proposition, particularly now as the cost of living is rising in Eastern China where migrant workers have traditionally sought jobs.
With growing options, workers are demanding higher wages to make migrating worthwhile. Between 2009 and 2010, minimum wages rose more than 22 percent on average nationwide.
Shanghai led the way with a minimum wage of 1,120 (US$173) yuan a month. But some workers believe the bar could be raised higher still. Born in the 1980s and 1990s under the single-child policy, "this generation is completely different from their parents in what they expect from life. They want to stay in the cities they migrate to and receive better treatment there," says Yuan.
Rising costs
The government has responded with laws requiring companies to shoulder more and more employee costs. That includes social insurance, which has risen from a flat 200 yuan a month per worker to more than 50 percent of salary in some cities. Such changes are tough for China's labor-intensive industries. According to Aon Hewitt Associates, a global HR consultancy, the biggest signs of strain can be found on the southeast coast, the old heart of export manufacturing where many factories are closing or operating at a loss.
Wang Xinkui, deputy chairman of the All-China Federation of Industry and Commerce, notes that rising costs are a big concern among his organization's members, who are primarily from local private companies. "In the past, labor was cheap because farmers had zero wages; they were happy with anything over zero," he says. "Industry got used to this extremely low price, and it's taking them a while to adapt to new realities."
But rising labor costs are not the main concern for many companies. Rather, it's finding the skills they need. The greatest shortage currently is for skilled, blue-collar workers.
According to the China Monitoring Center report, the gap between demand and supply for all levels of technicians and engineers ranged from 60 percent to 90 percent in 2010. It's a problem that money can't seem to fix.
Research by HR consultancy Aon Hewitt Associates in Shanghai has found that senior engineers can earn up to 4,000 yuan a month and technicians around 3,000 yuan a month. That's higher than the entry-level salaries of many university graduate wages. Yet technical colleges struggle to fill their classrooms.
Part of the problem is that the poorest manual workers do not have disposable incomes to invest in further education, says Wang. "I worked on a government program to train nannies and nurses. We spent a lot of money to pay for the courses so that it was free for the workers. But even then, no one came. For migrant workers, every day spent in school was a loss of a day's wages. In the end, we had to pay people to get training."
(Adapted from an article from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://bit.ly/lcJA3z)
Awkward surpluses and shortages of workers are now cropping up in unexpected parts of the economy.
Low-skilled rural workers willing to migrate to industrializing parts of the country are increasingly in short supply, while millions of university graduates compete tooth and nail for scarce white-collar jobs, often accepting lower pay and fewer benefits than their degrees would have earned them just a few years ago.
It's hard for any analysis of China's labor market not to fixate on the vast numbers. In 2010, for example, around seven million students graduated from universities, of which about one-fifth could not find jobs, according to a report by the China Monitoring Center for Labor Market Information. At the same time, demand for China's hundreds of millions of blue-collar workers exceeded supply for the first time in 10 years.
"There has indeed been a sharp lack of migrant workers after the last Spring Festival [marking the beginning of the Chinese new year in early February] - many went home for the holidays and simply did not come back to work," says Yuan Zhigang, dean of Fudan University's School of Economics and director of the Employment and Social Protection Research Center.
One of the reasons why, he says, is the growing reluctance among migrant workers to accept their old meager pay packages at a time when the country's economy is booming.
What's more, he adds, many workers are able to find work closer to their homes, since rural central and western China are beginning to industrialize and catch up economically with other parts of the country. That's an attractive proposition, particularly now as the cost of living is rising in Eastern China where migrant workers have traditionally sought jobs.
With growing options, workers are demanding higher wages to make migrating worthwhile. Between 2009 and 2010, minimum wages rose more than 22 percent on average nationwide.
Shanghai led the way with a minimum wage of 1,120 (US$173) yuan a month. But some workers believe the bar could be raised higher still. Born in the 1980s and 1990s under the single-child policy, "this generation is completely different from their parents in what they expect from life. They want to stay in the cities they migrate to and receive better treatment there," says Yuan.
Rising costs
The government has responded with laws requiring companies to shoulder more and more employee costs. That includes social insurance, which has risen from a flat 200 yuan a month per worker to more than 50 percent of salary in some cities. Such changes are tough for China's labor-intensive industries. According to Aon Hewitt Associates, a global HR consultancy, the biggest signs of strain can be found on the southeast coast, the old heart of export manufacturing where many factories are closing or operating at a loss.
Wang Xinkui, deputy chairman of the All-China Federation of Industry and Commerce, notes that rising costs are a big concern among his organization's members, who are primarily from local private companies. "In the past, labor was cheap because farmers had zero wages; they were happy with anything over zero," he says. "Industry got used to this extremely low price, and it's taking them a while to adapt to new realities."
But rising labor costs are not the main concern for many companies. Rather, it's finding the skills they need. The greatest shortage currently is for skilled, blue-collar workers.
According to the China Monitoring Center report, the gap between demand and supply for all levels of technicians and engineers ranged from 60 percent to 90 percent in 2010. It's a problem that money can't seem to fix.
Research by HR consultancy Aon Hewitt Associates in Shanghai has found that senior engineers can earn up to 4,000 yuan a month and technicians around 3,000 yuan a month. That's higher than the entry-level salaries of many university graduate wages. Yet technical colleges struggle to fill their classrooms.
Part of the problem is that the poorest manual workers do not have disposable incomes to invest in further education, says Wang. "I worked on a government program to train nannies and nurses. We spent a lot of money to pay for the courses so that it was free for the workers. But even then, no one came. For migrant workers, every day spent in school was a loss of a day's wages. In the end, we had to pay people to get training."
(Adapted from an article from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://bit.ly/lcJA3z)
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