Thursday, April 06, 2006

Labor Shortage in China

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. 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.
That is good news for workers in China. They have gotten to the point where there are not enough workers to fill the jobs, so the wages and benefits will have to go up. While unions can help workers get better pay, there is nothing like good old supply and demand to really get the wages up.

What is causing the change?
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.

According to Goldman Sachs and other experts, the beginnings of a demographic shift have already been reducing the number of young people between the ages of 15 and 24, who make up much of the migrant labor work force. Similarly, the number of women between the ages of 18 and 35 began falling this year, according to census data.

Many are going to college to avoid the factory floor. Last year, Chinese colleges and universities enrolled over 14 million students, up from about 4.3 million in 1999.
Looks like China will no longer be the low cost provider of goods for the world. They are moving upstream with a more educated population and business know how. So where will the low cost manufacturing go?
"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."
via New York Times

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