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| Economic Expansion in China Causing a Labor Shortage (Business) |
| | Poster: Neal | Posting Date: 2005-05-10 | |
Jeff Neal
According to the Chinese Labor Ministry, the worker shortage was almost 3 million workers in 2004 and is projected to be an even higher figure for 2005. Chinese economists assert that manufacturing companies that operate in there must start to realize that the days of a limitless supply of workers are over. Of course, the fallout of this tight labor market! , along with increased material and shipping costs, are that the very profitable export market could take a hit because these higher prices will likely be pushed on to their biggest customers-like the United States and the industrialized European economies, which will possibly dampen demand. The huge American retailer Wal-Mart (WMT) could directly be impacted given that the company purchased about $17 billion worth of products from China in 2004. Company officials insist that so far they have been able to minimize the cost increases via negotiation and of course being able to leverage their immense volume. However, the company did reveal concern about managing further cost increases down the road. Many people who closely follow the Chinese economy insist that this shortage is no real surprise and say it is part of China's economic maturity. Th! ey feel it really is a good thing and that all industrialized nations eventually have to deal with labor shortage issues. In fact, the labor shortage has given many Chinese migrant workers a lot more power in that now they are no longer afraid to make demands for higher wages and benefits. Even though economists are not really surprised by this new labor shortage many companies that operate in China certainly have been caught off guard. The reason for such huge labor price surges is the many new emerging trends within China. First the agricultural economy in China has really taken off with the rising crop prices and the elimination of agricultural taxes by the Chinese government. The result of this prosperity is that many more farmers can now stay at home versus pursuing factory jobs in the cities. Farm incomes have increased 16 percent since 2003 making most rural workers conclude that minus any specialized technical skills it is far better to stay on the farm and work. In addition with other rural areas becoming more developed! throughout China, rural workers do not have to travel far anymore to find work. Given the huge multi-nationals like General Motors (GM) that have built facilities in these rural areas and also offer better wages has definitely had a draining effect on factory workers in the major cities. The Chinese workers are much more knowledgeable and aware about these types of jobs now than ever before so they are choosing to ignore the inner city factory job to take on a higher paying rural job. Going forward, these factors will only increase, not decrease, so the current labor shortage will probably be a fact of life for a long long time. This will force factories to eventually improve their facilities, benefits and wages, which will more than likely force many of them out of business. The successful factories that make the transition will do so my being able ! to raise productivity as better labor and factory conditions are final ly implemented. Ironically, U.S. companies that operate factories in China are not experiencing a labor shortage since they pay decent or better wages. The ones that have really been impacted are the Chinese home grown factories that have been very slow in raising wages in part due to very small profit margins. However, the business landscape has definitely changed by virtue of China's phenomenal economic growth, creating a lack of workers willing to toil in these old-school facilities. Now it is up to these types of factories to learn to adapt to this new labor shortage or face going out of business. Happy Trading.
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