Recent developments in China's labor market: Labor shortage, rising wages and their implications
| Published date | 01 August 2018 |
| Author | Jingjing Meng,Changrong Lu,Yuming Cui |
| Date | 01 August 2018 |
| DOI | http://doi.org/10.1111/rode.12391 |
REGULAR ARTICLE
Recent developments in China’s labor market:
Labor shortage, rising wages and their implications
Yuming Cui
1
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Jingjing Meng
3
|
Changrong Lu
2
1
School of Economics and Management,
Harbin Institute of Technology,
Shenzhen, China
2
School of International Relations, Sun
Yat-Sen University, China
3
School of Economics and Management,
Beijing University of Posts and
Telecommunications, China
Correspondence
Changrong Lu, School of International
Relations, Sun Yat-Sen University, China.
Email: narcissu1113@hotmail.com
Abstract
China’s abundant supply of cheap labor has played an
important role in its remarkable economic and social
development. Recently, however, China has experienced
a labor shortage and rising wages, implying that the
country’s long-lasting competitive advantage based on its
“unlimited”labor supply and low costs is vanishing. We
find that structural demographic changes, regional eco-
nomic growth disparities and the household registration
system may have caused the labor shortage. Furthermore,
China’s continued low wages, relatively low labor share
of gross national income, declining proportion of house-
hold consumption to GDP, and productivity improve-
ments as well as increasing unit labor costs can be used
to explain the recent wage increases. The dramatic devel-
opment of its labor market signals that China is entering
a new stage of economic development. The country’s
prior successful model of economic development needs to
be adjusted to adapt to the new situation in its labor mar-
ket to achieve sustainable economic development.
1
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INTRODUCTION
China has achieved remarkable economic performance for more than three decades, since its
reform and opening-up policy was introduced in 1978. China’s abundant supply of cheap labor
undoubtedly played an important role in its economic and social development. Since the beginning
of the 1980s, millions of Chinese migrant workers have relocated from rural areas to coastal cities
for work. Furthermore, labor wages have remained at a relatively low level because of China’s
“unlimited”labor supply. An abundant supply of cheap labor and relatively low wages represent
DOI: 10.1111/rode.12391
Rev Dev Econ. 2018;22:1217–1238. wileyonlinelibrary.com/journal/rode ©2018 John Wiley & Sons Ltd
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China’s competitive advantage relative to other economies and have significantly contributed to
China becoming the “world’s factory”over the past several decades.
Nevertheless, this “unlimited”labor supply cannot last forever. The working-age population in
China has continuously decreased from 937 million in 2012 to 911 million in 2015 and to 907
million in 2016.
1
The labor shortage initially appeared in 2004 when the “migrant worker shortage
phenomenon”in manufacturing cities of the Pearl River Delta and the Yangtze River Delta was
reported; it has subsequently spread to other areas of China (Banister, 2005). More recently, partic-
ularly in the aftermath of the 2008 Global Financial Crisis, more frequent reports of labor short-
ages in certain manufacturing cities have appeared in official reports, although the reports show
varying seasonal and regional characteristics (Zhao & Huang, 2010). Furthermore, labor wages in
China have increased substantially. Li, Li, Wu, and Xiong (2012) argue that China’s wages have
increased for both skilled and unskilled workers, in both coastal and inland areas, and for both
exporting and non-exporting firms. Figure 1 shows that both the nominal and real wages of
employed persons in firms with different types of ownership in urban areas of China continuously
increased between 2000 to 2015, particularly after 2010 when the Chinese economy recovered
from the financial crisis, which was mainly due to its 4 trillion yuan economic stimul us program.
In addition, we can observe that workers in state-owned firms enjoy higher wages, while those in
urban collectively owned firms have lower wages.
The dramatic change in China’s labor market has attracted lively discussions. According to Cai
(2009), by analyzing China’s demographic transition, China’s demographic dividend, which is one
of its most important competitive advantages, is diminishing.
2
Zhang, Yang, and Wang (2010) and
Li et al.(2012) argue that China’s era of an “unlimited”cheap labor supply is over. Conversely,
by examining the marginal productivity of labor, some argue that a substantial amount of surplus
labor in China’s agricultural sector continues to exist (Minami & Ma, 2010; Golley & Meng,
2011). Knight, Deng, and Li (2011) reach similar conclusions and argue that a large pool of sur-
plus labor in rural areas and rising wages in urban areas could exist simultaneously over the next
several years. The authors also note that there will not be a “neat”Lewis turning point because of
China’s unique characteristics, such as the economy’s size and the related regulations.
3
Liu (2013)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2000
2005
2010
2015
Average
State-owned firms
Urban Collective-owned firms
Firms of other types of ownership
Average
State-owned firms
Urban Collective-owned firms
Firms of other types of ownership
nominal w age
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2000
2005
2010
2015
real w age
FIGURE 1 Nominal and Real Wages of Employed Persons in Urban Areas, by Type of Ownership, Yuan per
Year, 2000–2015 [Color figure can be viewed at wileyonlinelibrary.com]
Source: National Bureau of Statistics of China (NBSC).
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CUI ET AL.
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