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Increasing the Price of Labor

The sluggish or even negative pay rise may be behind the recent shortage of migrant workers plaguing some regions of the country.


It is widely reported that cities in South China's Pearl River Delta are now experiencing an acute shortage of migrant workers.


And the situation is getting worse, with more and more regions reporting labor undersupply, even in some labor-exporting regions.


It came as a huge surprise to learn this as China is perceived to be a country with a labor surplus.


Currently, there are a record number of 98 million migrant workers in cities.


And about 300 million more still need to be settled in towns or cities in the coming years, a herculean task for China.


The current shortage of migrant workers, unfolding against the backdrop of an abundant labor pool, is contradictory and unsettling.


Like other commodities, labor supply is also closely associated with its price - in this case, the wage.


Any wage fluctuations will tip the balance of labor supply and demand.


When looking at wage, we should take notice of the differences between its nominal and real term.


The real wage will be affected by the Consumer Price Index (CPI).


For migrant workers, the price of food, which accounts for a large portion of their consumption, takes a considerable bite out of their real wages.


According to statistics, urban workers' real wage has registered an annual increase of 6 percent over the past 10 years, but migrant workers' nominal, let alone real wage, in the Pearl River Delta stayed almost static over the same period.


While their nominal wage has basically remained stagnant, their real wage actually plummeted.


When the CPI shot from negative 2 percent to 6 percent, migrant workers' real wage plunged 8 percent.


The grain price, which saw a big jump in 2003, continues surging ahead in 2004, soaring by 26.7 percent in the first half of this year compared with the same period last year.


The rising grain price may have a trivial impact on common urban dwellers, but it has effectively cut a big chunk off migrant workers' nominal wage, greatly lowering their real wage.


While the income from working in cities remains unchanged or even dwindles, the earning from agriculture is on the rise.


It is forecast that farmers in major grain-producing regions will see their per capita income grow by more than 50 yuan (US$6) this year alone, thanks to a host of favorable policies adopted by the government such as tax reduction.


According to the National Statistics Bureau, the average income of farmers in the first half of this year reached 1,345 yuan (US$162), a 16.1 percentage points jump year-on-year. Even deducted from price factors, the actual income increase was 10.9 percent.


What is significant is that in this 16.1 percentage points, income of farmers-turned-workers increased by 13.9 percent, while the income earned from selling agricultural products increased by 18.9 percent, and household commercial income increased by 15.4 percent.


It is rational that many farmers, after comparing these earnings, may choose to toil in the fields at home rather than taking the trouble of relocating to cities.


This may well explain the current shortage of migrant workers.


It is not the depletion of the labor pool that engineered the current shortage, rather it was caused by the stagnant wage level migrant workers receive.


At a time when the sizzling national economy has produced a strong demand for migrant workers, their wages have not been adjusted in tune with the rising CPI and grain price.


According to a report released in June this year, the number of farmers seeking jobs in cities only increased 3.8 percent in the first half of this year compared with the previous year, while the national economy, though affected by marcoeconomic controls, still edged closer to double-digit growth, registering a 9.7 percent increase.


However, as for the concern that the current shortage of migrant workers will become a chronic problem in the future, it is unlikely.


The current strong demand for their labors is largely caused by a combination of factors such as heavy investment, soaring consumption and swelling exports, a situation that is likely to continue until 2008.


After that year, although labor demand is still predicted to increase, its scale will be much smaller.


And it is likely that the current underpriced wages will be rectified in a prompt manner after this round of labor shortages, which will once again offer incentives for farmers to seek jobs in cities.


Under such circumstances, the worst case scenario of the on-going labor shortage becoming a chronic rather than an occasional phenomenon is unlikely to materialize.


(China Daily October 12, 2004)

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