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China – Is a labour shortage looming?

21 February 2014

The common perception of China is that workers slave away on two dollars a day but in reality the wages of Chinese migrant workers have seen strong double-digit growth for the past four years, according to businessspectator.com.au.

In 2013, the wages for Chinese migrant workers increased by +13.9% from the previous year. It was nearly twice the growth rate of China’s GDP. For the country’s 269 million migrant workers, their average wages in 2013 were RMB 2,609 per month (USD 427).

In fact, Chinese wages increased most dramatically around the time of the global financial crisis. Between 2009 and 2013, Chinese wages surged each year by +5.7%, +19.3%, +21.2%, +11.8%, and by +13.9%, respectively, according to data from National Bureau of Statistics.

China’s total labour force is about 800 million, of which more than one third is made up of migrant workers from rural China. It is the world’s largest labour force, almost twice that of America, the EU and Japan combined. Cheap and abundant Chinese labour is one of the key reasons why global central banks can keep interest rates low.

However, the dramatic double-digit increases in Chinese migrant workers’ wages have been seen by some as a sign that the world’s most populous nation is about to run out of surplus labour.

It has been widely reported that Chinese factory owners have complained about labour shortages as well as wage increases. In Guangdong, the industrial heartland of China, skilled technicians can earn as much as RMB 100,000 per year (USD 16,352).

The labour shortage pressure is borne out by the statistics. Yang Zhiming, Vice-minister of Human Resources and Social Security, told media the country’s migrant worker force increased by only +2.4% nation-wide last year and contracted by -0.2% in eastern coastal provinces.

The country’s one child policy, first introduced in 1979, has played an important role in causing the labour supply to slow down. The population of working age people is expected to grow at +0.7% a year until 2015 and then shrink by -0.1% a year until 2025.

For years, Chinese migrant workers from the countryside have moved to the cities for jobs at factories and construction sites. Despite huge gains in productivity, the real wages of workers hardly moved during the 1980s and 1990s. The movement of workers from the countryside to cities has helped put downward pressure on manufacturing wages, not just in China but also around the world.

The dramatic increase in wages in the past four years strongly indicates that China is running out of surplus labour. One of China’s most influential labour economists, Cai Fang, who is the director of the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences, argues that the country reached the point in around 2010 when migrant workers’ wages rose by +19.3%.

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