Days of endless cheap labour are finished

Wei Gu, Reuters
05 June 2010

A decade ago, China looked like a case study in raw capitalism. There was a virtual army of rural workers looking for factory jobs in the cities. They kept wages low and employees pliant. Those days are over.

Consider Foxconn, which faced suicides, and Japanese carmaker Honda, which had to deal with a strike. Workers in both won 24 to 30 per cent pay increases. A new model of labour relations is taking shape.

There are three issues for operators of export-oriented factories.

First, the pool of suitable labour is getting smaller. The combination of a dramatic drop in the birth rate and years of successful job creation have shrunk the pool of underemployed peasants. When the pool dries up completely, employees can ask for more without much fear of being undercut by newcomers.

Second, the new generation of young workers have higher expectations than their parents. They are more productive because they are better educated and skilled, but sophistication leads to ambition, high wage aspirations and frustration with monotonous factory tasks. The Foxconn complaints seem to be as much about the rigidity of life in the factory compound as about wages.

Finally, the mainland service sector has started to get larger. That is a normal trend as economies get richer. But shops and restaurants can provide strong competition to assembly lines for would-be workers.

It will be years before many Chinese employers have to worry about being priced out of the global market. China’s manufacturing hourly wages have risen sharply since 2005, when census data showed the average to be 5 per cent of the South Korean level and 17 per cent of the Brazilian, but relative poverty remains one of the country’s competitive advantages.

Still, the trend is clear. As workers become richer, they get less flexible. That means managers have to become more generous.

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