Firms in China Faced with Tight Supply of Skilled Labor

By Clouse, Thomas | Workforce Management, September 11, 2006 | Go to article overview
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Firms in China Faced with Tight Supply of Skilled Labor


Clouse, Thomas, Workforce Management


Rapid economic growth, coupled with myriad cultural and educational factors, make the country a seller's market for managers and other upper-level talent

IN THE THREE DECADES since it opened its doors to the West, China has risen to become the world's fourth-largest economy and its leading manufacturing base. In recent years, the country has laced shortages of steel, concrete, oil and even water as it struggles to maintain its rapid pace of development.

But China may now face one of the most unlikely problems for a country of 1.3 billion people: a labor shortage. As the economy evolves and the demand for skilled workers and business leaders increases, new growing pains in China's labor market are setting in.

Reports of labor shortages first surfaced a few years ago and came primarily from China's southeastern provinces. The issue gained more attention early this year when millions of migrant workers failed to return to work after celebrating the Chinese New Year. Many of these workers remained in China's countryside, better able to carve out a living after the Chinese government abolished agricultural taxes and further liberalized markets for agricultural products.

Others decided to find work in factories closer to home. Government initiatives to develop the country's central and western regions are showing signs of success, as more companies are willing to set up shop in inland areas. Local governments have also offered cheap land, tax benefits and other perks to attract investment. Migrant workers are now able to Find better-paying jobs closer to borne, and companies in the traditional manufacturing areas along China's eastern coast are finding it more difficult to find and keep good workers.

Most analysts agree, however, that the changes in China's unskilled labor force do not really constitute a labor shortage. Economic growth and new government policies have given Chinese workers more options, and some companies have to pay more and oiler better conditions to recruit and retain workers. But the unskilled labor supply is still ample to meet demand.

"The government has been trying to raise agricultural living standards and developing inland areas, so pressure to migrate to cities on the east coast to find a job has lessened a bit. Plus, the pay in some of the factories has been so low that some people found they made more money with farming," explains Tamara Trinh, Deutsche Bank's senior economist for Asia.

"Some firms with relatively low pay in the Pearl River Delta region found themselves short of labor and had to raise their dirt-cheap wages and improve their working conditions somewhat. But with at least ISO million surplus laborers in the countryside and about 10 million new entrants into the labor market every year, I do not yet see the low-skilled labor market tightening significantly in the foreseeable future."

But China still has serious labor problems, Trinh says. "The market for skilled labor is a totally different story," she says. "Skilled and experienced human resources are scarce for many industries and also in banking-especially experienced managers. Those with experience working abroad are best but are also hard to find and expensive."

Evidence of this skilled labor shortage is easy to find. In the annual member survey conducted by the American Chamber of Commerce-People's Republic of China, human resources trumped corruption, government bureaucracy and intellectual property rights to rank as the No. 1 concern lor American firms operating there. Respondents also generally felt the situation was getting worse, particularly in terms of retaining good managers. A survey conducted by HR consulting company Hewitt Associates places the 2005 turnover rate at 14 percent, up from 8.3 percent in 2001. Wages increased by 8.4 percent in 2005.

"The market for labor is hot in China," says Jim Eeiningcr, general manager of Watson Wyatt Worldwide in Beijing, "and it's a seller's market.

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