Monday, April 03, 2006

China has a shortage of people!

Market reforms in China led to incredible growth. In recent years economic growth of 8% was not unusual. The Chinese people have been growing wealth at one of the most rapid paces ever seen anywhere in the world. It's amazing was freeing up markets can do.

And now China is starting to face a labour shortage. Or perhaps we should say tehy have a job surplus. Tne New York Times reports that hundreds of Chinese factories have been plagued by a consistent shortage of workers. And one result is that wages are being pushed higher and higher.

Employers are increasing wages, offering more benefits and even sending out recruits to the countryside to try and find new employees. One employer said that only a few years ago people were lined up for jobs and now "we put up an ad looking for five people, and maybe one person shows up."

One effect is that some employers are already finding labour in China too expensive and looking for cheaper markets. And as wages go up the Chinese may start buying more expensive goods from outside China. And as wages go up in China the cost of their goods will increase as well. With their products costing more and the Chinese buying more from overseas the trade balance is likely to start swinging in a different direction and China's huge trade surplus may shrink rapidly.

The Chinese government abolished an agriculture tax and now many rural people are prefering to stay in the countryside. And China's strict one child policy means fewer and fewer young people are going to be available for jobs. China, may in a few years, face another problem. It will have one of the most rapidly aging populations in the world because of the low birth rates.

Reports are that workers are driving harder bargains as the job surplus gets bigger. Younger workers are not interested in working in factories. And without people from the countryside moving into the cities as they did in the past the upward pressure on wages is going to continue and the living conditions of Chinese workers will improve very rapidly. It is amazing what free market reforms can do and how a nation that was once one of the poorest in the world, with well over 1 billion people, is now feeding itself and has more jobs than workers.

Only a few years ago the wages in China were much lower but expanding markets increase demand for workers pushing up wages. And when factories leave China for Vietnam, India or Pakistan the result will be one of pushing up wages in those countries as well. Yes, the employer is seeking to pay the least amount possible. But he still has to compete with other employers and outbid them for the workers he wants. So as China gets richer it will shed the lowest paying jobs which will migrate to poorer nations pushing up wages there. It's a win win situation.