Chinese Labor, Cheap No More

The after-’80s generation 

By MICHELLE DAMMON LOYALKA

WHEN China’s vice president, Xi Jinping, visited the White House on Tuesday, President Obama renewed calls for China to play more fairly in the world economy. Vice President Joseph R. Biden Jr. echoed those sentiments, telling Mr. Xi that the two countries could cooperate “only if the game is fair.”

But while China’s industrial subsidies, trade policies, undervalued currency and lack of enforcement for intellectual property rights all remain sticking points for the United States, there is at least one area in which the playing field seems to be slowly leveling: the cheap labor that has made China’s factories nearly unbeatable is not so cheap anymore.

China has experienced sporadic labor shortages, which in turn have driven up its once rock-bottom labor costs. This trend is particularly evident in the weeks following China’s Spring Festival, or New Year, when more than 100 million rural migrants return to the countryside to spend the year’s biggest holiday with family. Coaxing those same migrants back into the urban work force has proven increasingly difficult.

This year has been no exception. Although nearly two weeks have passed since the Lantern Festival that officially marks the end of the 15-day holiday, cities across China are still facing a serious labor shortfall. In order to lure new workers and retain the old, some companies give employees sizable bonuses just for coming back to work, while others offer cash for every new employee they bring along with them. And in many areas, wage increases ranging from 10 to 30 percent have become the norm.

Despite all this, cities like Beijing, Shenzhen and Guangzhou are still short hundreds of thousands of migrant workers. Shandong Province is missing a full third of its migrant work force, and Hubei Province reports a loss of more than 600,000 workers. Last week, the Chinese government released a report describing this year’s post-Spring Festival labor shortage as not only more pronounced than in years past, but also longer-lasting and wider in scope.

Numerous factors underlie China’s mounting labor woes. Until now the country has been able to achieve its stunning economic growth by shifting large numbers of farmers into nonagricultural jobs. Over the past several years economists have warned that China may be reaching the so-called Lewis Turning Point — the stage at which the rural surplus labor pool effectively runs dry and wages begin to rapidly increase.

At the same time, China’s population has been steadily aging, and by 2020 the nation will have more than 200 million people over age 60. Furthermore, rising living costs in urban China coupled with markedly improved conditions in rural areas are encouraging many would-be migrant workers to look for opportunities closer to home.

In addition to a shortage in the sheer number of available workers, China’s labor problems are further exacerbated by a shift in the quality and character of its work force. For the older generation, there is very little that a factory or foreman can dish out that seems too difficult to deal with, given that they witnessed, or grew up with parents who had witnessed, the nation’s rocky ride through the Communist Revolution, collectivization, the disastrous Great Leap Forward and the Cultural Revolution. These are the people who pioneered the model of migrant labor on which Chinese manufacturing has come to depend: long hours in substandard conditions, all for a fraction of what United States workers earn.

As illustrated by the recent headlines over working conditions at Foxconn, which makes components for Apple, there are plenty of migrant workers still living and working under that model. But by and large China’s younger generation is no longer willing to endure hardship without clear expectations that it is a temporary means to a more comfortable end.

According to the government report, a full 70 percent of rural migrants are now under 30. That means they are members of the so-called after-’80s generation — a euphemistic Chinese term to describe those who grew up during the nation’s economic revival and have thus never experienced real deprivation or acquired a taste for the chiku (“eating bitterness”) work ethic championed by previous generations.

In the past, China’s migrant workers were just thankful not to go hungry; today they are savvy and secure enough to start being choosy. Higher salaries, basic benefits, better working conditions and less physically taxing jobs are only the beginning of their demands, and for many factories, these are already too costly to be tenable.

For China, having spent the last three decades building the nation on the back of its cheap labor force without having to pay too much attention to its welfare, all this is uncharted territory. It is also a serious blow to the comparative advantage that has helped make its factories an international juggernaut.

It’s no wonder then that the day after meeting with Mr. Xi, President Obama showed up at a Master Lock plant in Milwaukee declaring that the time for manufacturing jobs to return to America had arrived. Not too long ago such a statement would have been nearly unthinkable, but now, thanks to China’s rising labor costs, it looks as if America might be back in the manufacturing game sooner than expected.