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China’s Workers Start Getting Picky

Labor shortages are forcing Chinese companies to offer workers higher salaries and better working conditions. China’s stagnant demography and schools are producing a smaller and better educated workforce, forcing Chinese firms to compete with one another for labor. The Financial Times reports:

China’s working age population, defined as being between 15 and 59, fell by 3.5m last year to 937m, a result of the one-child policy of the past three decades.

As the number of available workers falls, factories struggle not only to find new hires, but also retain existing staff. A young and educated workforce demands more from employers. In this context, working conditions matter as much as salary.

“We want to give them a sense of belonging and the feeling of being respected,” says Mr Liu, referring to the company’s efforts that range from better housing for employees to soliciting suggestions from them in the factory.

The cost of courting workers will make Chinese firms less competitive globally, at least for the time being. The lower cost of labor in Southeast Asia means that factories there can still churn out widgets without giving in to worker demands for higher pay and better housing. Chinese companies have less flexibility; ignoring these demands can lead to factory shutdowns and social unrest.

These are the pains of rapid growth. In the medium term, China is sure to move up the production food chain by leveraging its regional comparative advantage in skilled labor. But that transition will not happen overnight and a decline in manufacturing jobs could spell trouble for low skilled workers and for China’s social stability. In the meantime, China’s red capitalists have a real challenge on their hands.

[Chinese factory workers image courtesy of BartlomiejMagierowski /]

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