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Vietnam and China. Labor Shortages Or Not?

By Dan Harris on Posted in China Business

I ain’t gonna work for Maggie’s brother no more
No, I ain’t gonna work for Maggie’s brother no more
Well, he hands you a nickel
He hands you a dime
He asks you with a grin
If you’re havin’ a good time
Then he fines you every time you slam the door
I ain’t gonna work for Maggie’s brother no more
—Bob Dylan
I have been hearing of labor shortages in China since forever and though there no doubt is a shortage of skilled and managerial labor, I have always found it hard to believe there is such a shortage of factory workers. I have always believed that if the factory owners paid more, they would have plenty of workers. I have always seen “labor shortage” as just a far too convenient excuse by Chinese factories for failing to deliver their product on time and for seeking to increase their charges.
But two different conversations over the last couple of weeks are causing me to doubt my own analysis.
The first was with a client who makes furniture in Vietnam in his own factories. He told me he has been having a real tough time getting workers for his factories, even though he insists (and I believe him) he pays above market and does whatever he can to make his factories a good place to work. He said that the problem in Vietnam is that living in the countryside is not that bad and that after a year or so in the factories, many workers decide to return to their farms back home. He admitted that if he were Vietnamese, he would rather live a bucolic existence with low wages than work in a factory for higher wages. He said “it’s not like China here. I’ve been to some of the villages where my workers come from and though not much is happening in those places, it certainly isn’t grinding poverty either.”
Then just yesterday, another client told me a similar story regarding his China factory. He said he was paying above market wages and doing what he could to make his factory a good place to work, both short and long term. He said that despite this, he was losing more workers each year to their hometowns. This guy has two factories (neither in Guangdong Province) and he claims he is losing workers not to factories closer to his workers’ hometowns, but to the hometowns themselves as more and more workers are deciding they can lead better lives not working in factories at all. He said that as China continues to improve the life of its rural citizens, we are only going to be seeing more of this.
What are you seeing out there?

  • robertb

    Ditto with your last paragraph. They’re staying closer to home. Who would live in a factory dorm hundreds of miles away, seeing your family once, maybe twice a year, when you stay closer to home for reasonably good wages? Besides family, food is such a big deal in China. Anyone from Hunan or Sichuan hates eating Guangdong food.
    We’ve all been complaing for years and years about China’s infrastructure problems past the coastline, once you get into the interior. Now the new multilane expressways have opened up and more rail capacity is coming on. The interior can finally get product and material to and from port.

  • http://www.qualityinspection.org Renaud

    “Paying above market wages” is very subjective in China. Maybe the fixed wage is good, but OT is limited. Also, salaries can vary widely depending on the skills of the workers–it is not unusual to pay some operators 2 or 3 times more than others.
    However, I agree that the trend is to see fewer migrant workers in factories. Their home provinces are offering more and more (service and manufacturing) jobs. And families with 6 kids are not that common any more…

  • la-di-da

    Chinese government’s policy to improve rural residents’ life is part of the reason. Another important reason is these migrant workers are almost perpetual “aliens” to the cities where they work. It is difficult for them to fully adapt to city life. The proverbial “Hukou”(household registration system) is here to stay despite advocates’ call for abolishing it. This is an almost insurmountable hurdle for workers who are low skilled labors. Think about housing,health insurance,pension and stuff like that. Their children can’t have a fair chance of getting a decent education in the city as a result of this. This is like a last straw.I won’t call it a segregation in the school system. The fact is schools for migrant workers’ children are often times poorly funded and short staffed.So if the parents work their butt off but their chidren are left in that kind of situation, why stay? Plus if their Children are left behind in rural areas, it’s likely these children will become problematic becuase they lack adults’ care and supervision. As the country doesn’t have a sound social safety net, rural people in their old age still rely on their children. In some areas, rural pension scheme is in place but it’s still patchy. The cost of living in the city is on the increase. As long as these workers don’t live in dire poverty after they choose to go back home, they can manage to get by in their rural communities. Rural people can do the math to see if it’s worthwhile to work in the city.

  • C

    An estimated 20m workers lost thier jobs in 2008 and 2009 after the US financial crisis led to less demand in America for Chinese goods. These people went back to thier hometowns and, as you say, found that life was not so bad now back in thier hometowns, and they have probably managed to save up some money to start a small business there. They are also much happier to be home near family.
    So yes, GZ and other locations that require many factory workers are having a hard time finding the mass of migrant workers who have now chosen to stay home because of the rising wealth and opportunities in thier home communities.

  • http://www.spicyspirit.com/blog elle

    I had an interesting conversation with my mom this past winter while we were arguing over the real estate bubble. The fact is that a lot of apartments in small cities have been purchased by immigrant workers. I told her China is losing competitive advantage on labor cost, and if all the manufacturing jobs moved out of China, the immigrant workers would lose jobs and could not afford the buy apartments anymore. My mom said no no no, we have a shortage of workers now and many factories are fighting for them!
    I’ve realized that old immigrant workers who were born in 40s-60s are too old for those jobs and have gradually gone back home. 70s is when we started the strict one child policy, that’s why today we see a big gap in numbers of immigrant workers…

  • la-di-da

    Elle,
    I don’t know which part of China you live in. But I find it a bit incredulous that migrant workers can afford apartments in small cities. I don’t think manufacturing jobs pay that well. Take a county under the administration of Nanjing, the capital city of Jiangsu province for example. The county has a population of about 400,000 and covers an area 900 sq.km. It has excellent infrastructure.(close to airport, the high-speed railway connecting Jiangsu and Zhejiag runs through. The project is near completion.) Chang’an Ford and other JVs have plants there. It is said 5 billion yuan will be invested in an outdoor movie studio to rival with the one in Hengdian.Its real estate sector is booming. Although I don’t have data about the breakdown of home ownership, yet from experience I can see the chance for migrant workers to own a house in such a small county is fairly slim. Housing price has soared above 3,500 yuan/sq since 2008 and is still on the increase. The demand is stimulated by Chaofangtuan, or speculators from periphery cities or even as far away as Zhejiang Province. I agree with you that the real estate market is very frothy and we will definitely lose competitive advantage on labor cost. But we can’t expect real estate and cheap labor to prop up the economy forever. As you mentioned, the one-child policy and the aging population will sooner or later jolt the country out of the comfort zone.

  • http://www.qualityinspection.org Renaud

    La-di-da,
    All migrant workers don’t earn minimum salary. Many of them earn 3 or 4 times that, save for years, and as a couple buy an apartment in their hometown. Then they arrange the decoration by themselves, to save money. I see plenty of people like this in Guangdong.

  • http://www.moestackleshop.com Mike O

    My lead times have doubled in the last 60 days. I have 4 suppliers and ALL say the same thing, no workers. The layoffs of 2008 have hurt China. The laid-off workers went home and found other jobs and moved on. Now China Mfg need workers. Hope it gets better soon! This is a great blog, keep up the good work

  • rosik

    Why doesn’t china bring workers from other countries and keep its manufacturing base as it is. It is time that china started looking for workers in another countries.