Labor mobility - the key to China's success
I came back to Beijing after a week in Shanghai over the May 1st weekend and found that my local noodle shop across the street had closed down. This is not uncommon in China and you can always find shops undergoing renovation on the commercial street near my home. In about a week, there will be a new shop with a new owner. Perhaps a noodle shop, perhaps not.
This is possible thanks to high mobility of the work force an capital in China. Without a secure work contract, people can move freely between jobs and enterprises between industries. The equipment from that noodle shop could be sold to equipment vendors just as easily as the to new owners, benefiting someone who is starting a noodle shop perhaps in the other end of town. It is also easy to find shops selling seemingly unrelated items, e.g. toys and clothes, just because the owner is trying to get rid of old stock when he decided to switch business.
People in developed countries often look at China with awe and frustration, amazed by the pace of economic development, vexed by the complexity when trying to understand her. The economic growth has been taking place mainly in the manufacturing industries. and most people can easily spot that wages are about one tenth of what Europeans would earn. What is often overlooked though is the mobility of the work force in China, much different from the socially secured Europeans and Americans now too indebted to move to other cities.
It has allowed firms in China to rapidly shrink their work force when market demand slumps. Workers can also switch jobs within days if they find a better job somewhere else, in effect setting a market price for the wages. This has historically been to the employer's advantage since the supply of migrant workers seemed endless early last decade. Now however, many industries are struggling to keep their skilled staff, having to pay increasingly higher wages. This is already a problem for many companies in manufacturing clusters along the eastern coast line where competing factories are just next doors to each other.
Life as a migrant worker is a hard one, especially if the person lacks a technical or personal skill. That's why people tend to do it only for a limited period of time. Most Chinese are also very tradition bound and prefer to live with their families back home. Every Lunar new year will leave factories missing some of their workers and this year was an exceptionally high one in face of uncertainty amid global recession combined with increased government subsidies for farmers and higher food prices. This is also happening in the high end of the scale where the Chinese government is trying to lure back the Chinese technical elite currently working in Europe and USA, outspending foreign institutions.
I don't think that Europe or USA need to fear the cheap prices. They will not always stay cheap and there is always going to be countries with still lower wages. What should take precedence is to increase the mobility of people. It will be difficult when people are comfortable where they are and incentives to move are small. Going through this transition will therefore be difficult and slow for these countries. I guess things will need to get a lot worse before they can be better.
Until next time.
Your watchful eyes in mobility central.
/Y
This is possible thanks to high mobility of the work force an capital in China. Without a secure work contract, people can move freely between jobs and enterprises between industries. The equipment from that noodle shop could be sold to equipment vendors just as easily as the to new owners, benefiting someone who is starting a noodle shop perhaps in the other end of town. It is also easy to find shops selling seemingly unrelated items, e.g. toys and clothes, just because the owner is trying to get rid of old stock when he decided to switch business.
People in developed countries often look at China with awe and frustration, amazed by the pace of economic development, vexed by the complexity when trying to understand her. The economic growth has been taking place mainly in the manufacturing industries. and most people can easily spot that wages are about one tenth of what Europeans would earn. What is often overlooked though is the mobility of the work force in China, much different from the socially secured Europeans and Americans now too indebted to move to other cities.
It has allowed firms in China to rapidly shrink their work force when market demand slumps. Workers can also switch jobs within days if they find a better job somewhere else, in effect setting a market price for the wages. This has historically been to the employer's advantage since the supply of migrant workers seemed endless early last decade. Now however, many industries are struggling to keep their skilled staff, having to pay increasingly higher wages. This is already a problem for many companies in manufacturing clusters along the eastern coast line where competing factories are just next doors to each other.
Life as a migrant worker is a hard one, especially if the person lacks a technical or personal skill. That's why people tend to do it only for a limited period of time. Most Chinese are also very tradition bound and prefer to live with their families back home. Every Lunar new year will leave factories missing some of their workers and this year was an exceptionally high one in face of uncertainty amid global recession combined with increased government subsidies for farmers and higher food prices. This is also happening in the high end of the scale where the Chinese government is trying to lure back the Chinese technical elite currently working in Europe and USA, outspending foreign institutions.
I don't think that Europe or USA need to fear the cheap prices. They will not always stay cheap and there is always going to be countries with still lower wages. What should take precedence is to increase the mobility of people. It will be difficult when people are comfortable where they are and incentives to move are small. Going through this transition will therefore be difficult and slow for these countries. I guess things will need to get a lot worse before they can be better.
Until next time.
Your watchful eyes in mobility central.
/Y
