Cheap Chinese Labor Disappearing?

The problem of Chinese workers refusing to return to their jobs after the Chinese New Year’s holidays is worse than ever. Last year, we wrote 30 to 40% of migrant workers hadn’t returned to their jobs in Guangdong’s Pearl River Delta, up from the usual 10 to 15%, despite the fact Guangdong authorities had raised minimum wages by up to 20%.

Now Beijing-based author Michelle Dammon Loyalka, in the New York Times, reports that this year, labor shortages are affecting China’s entire eastern seaboard:

Beijing, Shenzhen and Guangzhou are still short hundreds of thousands of migrant workers. Shandong Province is missing a full third of its migrant work force, and Hubei Province reports a loss of more than 600,000 workers. Last week, the Chinese government released a report describing this year’s post-Spring Festival labor shortage as not only more pronounced than in years past, but also longer-lasting and wider in scope.

In response, Loyalka has found, companies are giving employees sizable bonuses just for coming back to work, along with cash for every new employee they bring along with them. And wage increases ranging up to 30% have become the norm. Workers are seemingly happier to stay home in the increasingly prosperous interior (see picture), where employers are running out of surplus agricultural labor. Loyalka speculates that China is reaching the so-called Lewis Turning Point — the stage at which the rural surplus labor pool effectively runs dry and wages accordingly take off.

Another problem comes from a shift in the character of China’s work force. China’s younger generation is resisting factory work hardship absent evidence it’s a temporary means to a more comfortable life. 70% of rural migrants are under 30. They have grown up during China’s economic revival and have thus never experienced real deprivation. They are savvy enough to start being choosy, and want higher salaries, basic benefits, better working conditions and less physically taxing jobs.

Loyalka writes that China, having spent the last three decades building export domination on the backs of cheap labor, may now face a serious reduction in its worldwide comparative advantage, a change that could even benefit American manufacturers.