South-Western College Publishing - Economics  
Now that Firms Around the Globe Look to China to Cure Their Production Cost Woes, Where Are the Workers?
Topic Labor Markets
Key Words China, trade, labor, shortage, wages
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Reference ID: A143988844
News Story

Ironically, China—until recently the leader in low-wage production—is experiencing labor market changes that could have significant effect on the global marketplace: It can’t find enough workers. In Guangdong Province, factories were short over a half million workers last year, and in Fujian Province, factories were short 300,000 workers. As a result, wages in Chinese factories are on the rise—an increase of almost 25% over the last three years. And many firms are improving labor conditions and work amenities so that they can retain the workers they have.

Why has this happened? A number of circumstances have led to the shortages. China’s one-child only policy is coming back to haunt the country—the population of young Chinese is not growing, which, of course, slows work force growth. Also, government tax cuts have given people an incentive to stay on farms rather than work in factories. Finally, China may simply be a victim of its own success: Its economy is growing, people’s incomes are rising, and people are becoming more educated. People have fewer incentives to work in low-skill factory jobs anymore, and many more people are entering college instead of the factory.

Is this the end of low-skilled labor in China? Has China lost its comparative advantage in production? Not really—at least, not just yet—but it won’t be long before foreign-based firms look elsewhere to build new factories and employ unskilled workers. International firms are looking toward Vietnam and other parts of Asia, as well as India, to take over as the new global manufacturing hubs.


What does the article suggest about China’s comparative advantage in production?

2. What is happening to the opportunity cost of education?
3. Why do you think Chinese firms are increasing workplace amenities along with wages?
Source Barboza, David. “Labor Shortage in China May Lead to Trade Shift.” The New York Times. April 3, 2006.
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