Labor shortage sparks calls for growth reform

08:39, March 02, 2011      

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Job recruiters wait for potential employees at the Datang job market in Zhuji, East China's Zhejiang province, on Feb 19. Photos by Guo Bin / for China Daily

A child holds a recruitment poster outside the Datang job market in Zhuji on Feb 19.

Zhang Xiang, a young man from Ezhou, Hubei province, never expected to stay in the provincial capital, Wuhan. He had planned to go to Guangzhou to work in a factory.

He changed his mind a few days ago when he went to Wuchang Railway Station. There he found a number of enterprises had set up recruiting booths, in the hope of luring workers who planned to head south for work to stay.

Labor shortages in China are back in the headlines. But this year, the story has a new twist: Companies in central and western China have also entered the labor-grabbing fray.

Rising labor costs, together with labor shortages, are pressing enterprises to hasten industry upgrading to improve efficiency. And as workers' salaries increase, they are more willing to spend, helping make economic growth more consumption-driven.

According to Nomura Securities, local and multinational companies that once operated only in the coastal regions are moving or expanding inland in ever-growing numbers, attracted by lower costs and improving infrastructure, thus offering new job opportunities.

Increased labor demand in the inland region has narrowed the wage gap with the coastal areas.

A National Bureau of Statistics survey shows the average monthly wage in the east was 1,422 yuan ($215) in 2009. Wages were only 44 yuan less in the western regions and 72 yuan less in Central China. But the higher cost of living makes working in the eastern regions less attractive.

"I suddenly noticed that the salary Foxconn offers now is not so different from what the factory in Guangzhou did. Why should I bother to leave my home province and struggle for a train ticket each year?" Zhang said.

To fuel business expansion in China's inland cities, Foxconn, the world's largest maker of electronic components by volume, opened a green channel in each job fair where interviews, recruitment and transportation to the workplace could all be arranged on the spot. The company has built plants in inland Chinese cities of Wuhan, Chengdu, Zhengzhou, Jincheng and Taiyuan, creating thousands of jobs in the process.

"Though we've increased our salaries by nearly 20 percent this year, we still face a big labor shortage," a human resources manager said, adding that the company plans to hire 30,000 workers in Wuhan this year.

Local governments of inland cities also rolled out a slew of measures to retain labor forces.

In November, the Chengdu city government launched a program to attract the local labor force to stay by offering them more support in starting their own business and addressing the education difficulties for their children.

Sichuan used to be a major province exporting laborers to coastal areas.

China's labor shortage will be a long-term problem, rather than a short-term worry after the Spring Festival, economists said.

Stephen Green, a China economist with Standard Chartered, said new jobs hit 20 million to 25 million last year, more than doubling the official statistics.

"The growth pace of new jobs will exceed the increase of workers, and the situation will deteriorate in the following decade," said Green. "We estimated the growth rate of the labor population will be close to zero in the following years, so improving efficiency is key to sustaining economic growth."

According to Nomura, the proportion of the population aged 10 to 19, the "pipeline workforce" (or upcoming workforce), has fallen steadily over the last two decades from 19.9 percent to 13.5 percent, while that of the age 50 to 59 bracket (the official retirement age being 60) has increased from 7.8 percent to 14 percent.

This development, which first occurred in 2009, suggests that the proportion of the workforce to the population as a whole is close to peaking.

"These labor market trends are intricately linked to China's ongoing economic restructuring and helpful to sustaining growth," said Sun Chi, an economist at Nomura Securities.

China has decided to seek a more balanced growth model and reduce the proportion of exports and investment in the economy. Premier Wen Jiabao said earlier that China will address "structural problems" and "we can rely on stimulating domestic demand to stabilize and further expand the Chinese economy".

Consequently, the country needs a larger wage share in national income to help rebalance its growth towards consumption.

The decades-long decline of the household sector's share in national income reflects China's traditionally cheap-labor advantage, but if labor shortages now lead to rapid wage growth, especially in low-income groups, household consumption should boom due to a greater propensity to spend among low-income households.

"Rising wages may also force companies to move up the value chain and boost total-factor productivity," said Sun. The government has pushed for this for years, but businesses had little incentive to do so while they could tap such a vast pool of cheap labor.

Upgraded industries, in turn, would better match the needs of better-educated workers, both in terms of jobs on offer and remuneration received.

A shortage of qualified talent and rising labor cost, in fact, is also a key challenge facing multinational companies operating in China.

Mitch Barns, president of Nielsen Greater China, said acquiring, developing and retaining qualified labor is regarded as the main difficulty for companies' development in China in the next five years.

Andy Zhang, managing director of Cushman &Wakefield China, had a similar viewpoint.

"A lack of quality staff really poses a big challenge for us in expanding business here," Zhang said.

The world's largest reinsurance company, Swiss Re, for instance, just signed a deal with Peking University to jointly develop an insurance course, with the aim of developing a talent pool for its expansion in China.

"The most wanted talents in China's insurance sector are actuaries, and finding qualified actuaries is always a top priority for our human resources staff," said Robert Wiest, managing director, Clients Markets of Swiss Re Asia.

Source:China Daily
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