China to Face Labor Shortage in Two Years

China to Face Labor Shortage in Two Years

The Chung-Hua Institute for Economic Research points to a recent survey by the Chinese Academy of Social Sciences titled “2007 Green Paper on Population and Labor,” that states that China is currently approaching the “Lewisian turning point” (concerning the availability of unlimited manpower resources). It refers to the theory that when a surplus labor from the countryside decreases, wages will begin to rise substantially. The prediction is that China will begin to face a nationwide labor shortage in two years.

The latest issue of “The International Economic Outlook Weekly” from the Institute analyzed China’s labor shortage problems.

The Chung-Hua Institute for Economic Research quoted from the China State Council Development Research Center’s recent investigative report on China’s rural labor force, which illustrated that China’s rural labor force supply will not be adequate to meet demand as generally thought.

This investigation report covers 2,749 administrative villages in China’s 17 provinces. The result shows that 74 percent of the villages no longer have surplus labor forces to go to cities to work. Only 25 percent of the villages investigated said they still have some surplus below the age of 40.

It is noteworthy that even in relatively poor regions, such as the central and western regions of the country, cheaper labor supplies are also dwindling, which suggest that labor shortages are spreading from the economically developed eastern coastal areas inland.

The Chinese Academy of Social Sciences survey shows that China is approaching the so-called “Lewisian turning point,” that is, the turning point from surplus labor to labor shortage. The “Lewisian turning point” is the theory of Nobel laureate Arthur Lewis. Lewis said, “When surplus labor forces from the countryside become progressively less, industrial wages in those developing countries would rise substantially.”

The report from the Chinese Academy of Social Sciences indicated that the Chinese economy is going to face labor shortages. In 2009, China is going to face a nationwide labor force shortage. Even rural areas are likely to face labor shortages. This is before the projected year of 2010, as previously thought.

In fact, labor shortages in the eastern region of China began a few years back. Then wages for migrant workers accelerated. According to the 2007 Green Paper, from 2003 to 2006, on average a migrant worker’s monthly wage increased from 781 Yuan to 953 Yuan (approximately US$ 102 -125). On a yearly basis, the average monthly wage growth in 2004 was 2.8 percent, 6.5 percent in 2005, and 11.5 percent in 2006. The growth rate has accelerated every year.

The Chung-Hua Institute for Economic Research, referring again to the Chinese Academy of Social Sciences recent survey, commented that labor cost increases have shaken the core of China’s economic development. Foreign investors have started to leave this “world manufacturer” to look elsewhere for cheaper labor. This will force this country’s economy, which currently relies heavily on exporting and labor-intensive processing industries, to thoroughly restructure.