Society and Welfare

Labour Shortages in China:  No longer an isolated occurrence but looming nationwide

More information on labour shortages can be found here : On Labour Shortages in China
See also this for an overview of factors relating to labour shortages including discrimination: Implementation by the People’s Republic of China of its obligations under the ILO Convention on Employment Policy and low wages : ICFTU Observations to the ILO Committee of Experts on the Application of Conventions and Recommendations on Convention No.26 on Minimum Wage-Fixing Machinery

A spectre has begun haunting China in the past few years; the spectre of a labour shortage, which, according to scholars and industry-watchers, will begin to grip the world’s most populous nation around 2010. Already, there have been many reports of serious labour shortages in specific places and industries but a more generalized under-supply is forecast. The burgeoning economic development is helping soak up the overabundant supply of labour. Additionally demographic factors are at work, meaning that the effects of the one-child policy adopted three decades ago are being seen in the numbers of young workers.

A labour shortage began to bite, starting as far back as from 2002, when, according to Yuji Miura, writing in the online Asia Monthly of the Japan Research Institute Ltd., the phenomenon of 'mingong huang' or shortage of migrant workers was first noticed. [NOTE 1] A report in 2004 noted that, for instance, from March 2003, the number of women travelling to Changsha, the capital of Hunan province, looking for work, had dropped by 70 percent. [NOTE 2] The Ministry of Labour and Social Security (MLSS) put out a survey report in September 2004 giving the first official evidence that a substantial labour shortage had begun to emerge in parts of China. [NOTE 3] Labour shortage has “rapidly intensified”, senior economist Hiroshi Inagaki of the Mizuho Research Institute said in 2006. [NOTE 4]

Spreading shortage

The shortage of workers is not confined to the main manufacturing centres in the southern and eastern coastal areas of China but has been spreading to interior provinces. Up to 40 per cent of businesses had been unable to find enough workers to meet their needs, a report in July 2007 said, quoting Zhai Yanli of the MLSS information centre. [NOTE 5] Labour shortage "was originally found just along the southeast coast, but in recent years the trend has been spreading to the hinterland," Zhai was quoted as saying.

But Zhai also said the shortage was structural and that China actually had “an excess of 12 million labourers every year.” A similar observation was made by a Guangdong official earlier in 2007: The provincial Labour and Employment Service director Wang Guanyu discounted reports of a labour shortage, saying the unmet demand was limited to technicians and skilled workers and that factories which paid high salaries, had good working conditions and respected their workers could recruit enough staff within two weeks. [NOTE 6]

This might at first seem like a tall claim but it follows studies undertaken by institutions working on behalf of not only labour but also business. A study published by China Labour Bulletin in 2006 found that migrant workers’ “disillusionment at finding themselves trapped in the grinding tedium of jobs involving long overtime hours and only one day or so off per month was clearly the main factor that prompted them to start switching jobs. But whether doing so brought them any real improvements -- in the form of higher wages, shorter working hours, a safer working environment or better living conditions -- was quite another matter.” [NOTE 7]

The study notes that in fact, the country still has a “huge reserve of unemployed or underemployed rural population and is clearly not suffering from any absolute shortage of labour” but that many employers had reacted to the perceived shortage by forcibly putting their current workforce through longer hours with no change in salary. [NOTE 8] In China’s “socialist market economy,” a genuine free market in labour does not exist, the study observes. Employers unilaterally dictate the terms and conditions in which workers are hired and kept on. All the migrants can do, in the total absence of freedom of association and of the right to strike in the quest for fair wages, is to either put up with the harsh conditions or move elsewhere. Some of them have even been moving back to the countryside, (partly in response to some government initiatives aimed at cutting back the burden of taxes and levies on farmers and at stimulating the rural economy).

“Abysmal” conditions

Inagaki of Mizuho says wages are “extremely low” and working conditions “abysmal” in certain enterprises and that the emergence of shortages in them is therefore not a mystery. [NOTE 9] However, he says, the hypothesis that low wages and adverse conditions lie behind labour shortages does not explain fully why it was easier to hire workers in the past and why it has become difficult now. Needless to say, a phenomenon such as labour shortage cannot be attributed to one reason alone. A combination of factors is obviously at work, some having more of an impact than others in certain areas of the country.

Zhai of the Ministry of Labour and Social Security has said higher incomes generated by farming and more government funding for agriculture had lured some migrant workers back to their fields. [NOTE 10] Miura, writing in JRI's Asia Monthly, cites a survey showing the scale of inter-provincial migration has been declining greatly since 2002: The number of rural householders leaving in search of work was 111.38 million people in 2000. Inter-provincial migration in 2000 and 2001 increased year on year, by 7.07 million people and 8.57 million people respectively. Between 1999 and 2001, there were on average six million new migrants every year. However, from 2002, the scale of increase dropped by about a third, to two million people. [NOTE 11]

In June 2007, the online publication, Asia Times, said citing a new survey conducted by the Development Research Centre of the State Council, China's cabinet, that the supply of rural labour was not as ample as generally thought. According to the report, the survey covering 2,749 villages in 17 provinces showed that on average 74 percent of the villages no longer had any surplus labourers available to work in distant cities. [NOTE 12] Asia Times said the Chinese Academy of Social Sciences (CASS) referred to these figures in a green paper on population and labour, published in June, to make the point that China was approaching a "Lewisian turning point" (named after the late Nobel laureate economist, W. Arthur Lewis) moving from an era of labour surplus to one of shortage. The view is attributed to Cai Fang, director of the Institute of Population and Labour Economics under CASS.

Turning point

The “Lewisian turning point” is explained thus by Kwan Chi Hung in an online paper of the Research Institute of Economy, Trade and Industry of Japan: "According to this model, many developing countries have a virtually unlimited supply of labour for the industrial sector because of the massive labour surplus in rural areas. While wages are kept at a minimum, just enough for workers to survive, the volume of employment in the industrial and agricultural sector is determined by the point at which marginal productivity equals the level of wages in the respective sectors... In this kind of economy, where full employment has yet to be achieved, productivity improvement in the industrial sector, achieved either by attracting foreign investment or through other means, expands employment (in the industrial sector as well as in the whole economy) by absorbing surplus labour in the agricultural workforce and without causing any wage increase... In contrast, once that economy has surpassed the Lewis turning point, at which full employment is achieved, the industrial sector needs to raise wages in order to secure workers by reducing those in the agricultural sector, and the overall volume of employment remains unchanged..." [NOTE 13]

According to CASS estimates, China will face a labour shortage from 2010. Inagaki of Mizuho and Miura of JRI agree with that prognosis. One of the reasons is that there would be proportionally fewer young workers thanks to the declining birth rate stemming from the one-child policy that began to be enforced among large sections of the population in the 1980s. The imbalance in the male-female ratio would be another reason, meaning there would be fewer female workers --precisely the group preferred by certain kinds of industries. Asia Times has reported that according to an estimate of the National Development and Reform Commission, China’s leading economic-planning body, the supply of new labour peaked in 2006. Asia Times says that going by official figures, there are now 500 million rural labourers. The Agriculture Ministry reckons that at least 170 million are needed to sustain farm production, with another unspecified, but considerable number needed for other rural work. Some 150 million are estimated to be engaged in township enterprises. Further, rural migrants in cities are estimated to number between 80 million and 130 million and so the available surplus rural labour is between 20 million and 70 million. An unimpressive figure, given that in developed regions such as the Pearl River Delta alone, the annual shortage is estimated to be at least two million. [NOTE 14]

Joblessness amidst shortage

Miura of Japan Research Institute Ltd. says that in Guangdong province, there were places for around 7.3 million workers in 2006, some 2.5 million more than the number of people looking for work. In a recent report, provincial labour officials were quoted as saying there would be 2.2 million vacancies for technically skilled workers in Guangdong in 2010, but that only one million positions would be filled. [NOTE 15] The key words there are “technically skilled”. In fact, labour shortage exists alongside a vast pool of workers, which is, in fact, expanding.

A researcher at the Guangdong Academy of Social Sciences, Liu Yi, has blamed "structural" and "frictional" factors for the phenomenon. "Although workers are urgently needed, unskilled workers cannot replace those who are experienced and skilled, which is the structural unemployment issue," he said. "And some workers are leaving Guangdong because of its relatively poor working conditions and low wages, which is a frictional issue." Liu expressed pessimism about job market prospects despite China's rapid economic growth. He referred to a report that labour supply is expected to top 830 million by 2010 and that in urban areas, an additional 50 million residents will have joined the labour force by then, but that only 40 million jobs will have been created, leaving an extra 10 million without work. "The projected surplus of 10 million covers only urban residents. If we include jobless people in rural areas, the figure will be far more appalling," Liu said. "We do have robust economic development, but it is mainly driven by the government's fixed-asset investment, such as infrastructure construction which helps little in job creation." [NOTE 16]

Promoting productivity

China is thus faced with the dual tasks of ensuring effective job creation as well as combating labour shortage. In the absence of a real free market for labour, proposed solutions would only amount to tinkering with the problem. CASS economist Cai says China should deal with labour scarcity by promoting productivity: "It is important to create a productive market environment for investors and enterprises so that rising labour costs do not increase prices."
He also says, "obstacles in the labour market should be cleared", more job channels opened in urban areas and in rural areas, the household registration system reformed. [NOTE 17]

Into the word “obstacles” that Cai uses, much could be read. A CASS report has called for a reform of the Hukou and other restrictions on migration. [NOTE 18]  Hukou, or household registration system, rigidly controls migration and makes a formal change of domicile within the country a near-impossible task. Since access to hospitals, education and a host of other services is governed by the Hukou system, migrant workers face major disadvantages. One crucial issue that has received less than sufficient attention is the lack of freedom of association which is provided for in several international instruments China has signed on to and ratified. Freedom to move unhindered within the country and to form effective trade unions would help wean industry from an unhealthy dependence on low-paid labour and focus more on raising productivity in order to keep pace with trends in a global economy.

IHLO
October 2007