China jobs: A decade ago, China looked like a case study in raw capitalism. There was an army of rural workers looking for factory jobs in the cities. They kept wages low and employees pliant. Those days are over.
Consider Foxconn, a subsidiary of Taiwanese manufacturer Hon Hai Precision, which faced a wave of suicides, and Japanese carmaker Honda, which had to deal with a strike. Workers in both enterprises won 24-30 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 government-enforced drop in the birth rate and years of successful job creation have shrunk the pool of underemployed peasants. When the pool dries up completely, the so-called Lewis turning point, 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 Chinese service sector has started to get larger. That is a normal trend as economies get richer — much of the time saved by producing goods more efficiently is spent consuming services. 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 wage have risen sharply since 2005, when census data showed the average to be 5 per cent of the 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 about taking whatever is given. That means managers have to become more generous.
