Pricing people

Employers in China’s big manufacturing centers are finding it ever more difficult to recruit workers for the factory floor.

The shortage of executive and management talent is well documented, but further down the pay scale manufacturers are encountering a lack of unskilled labor to man production lines. What’s more, wages are going up as governments set up new minimums employers are obliged to abide by.

"The golden period of extremely cheap labor was eight, 10 years ago," said Jane Cheng, group director of human resources at Techtronics, a manufacturer of small household appliances with 15,000 employees in and around Dongguan.

It wasn’t that long ago that people to fill the factory floor could be found on demand. Nowadays, recruitment is a continuous effort. There are so many factories in China’s main manufacturing centers – the Pearl and Yangtze river deltas, the Beijing-Tianjin corridor and the area around Qingdao – that finding and keeping workers is a challenge.

Perks of the job

Workers can afford to pick and choose, and are often willing to jump ship over amenities like air conditioning, better dormitories or the availability of overtime. Some companies offer counseling services, put up basketball courts and improved food in the factory canteen.

"Everybody wants labor, so candidates get more picky," said Cheng. "In this area, a lot of factories have a banner that says ‘we are recruiting workers year round’."

Techtronics has also approached technical schools to hire students, particularly during busy periods leading up to Christmas. Students are not ideal employees because laws dictate that they can only work during daytime hours and limit the amount of overtime that can be taken.

The ideal employees, the ones that every factory wants, are young women.

Usually in their 20s and looking to save enough money to return home and marry, these young women are in such demand that employment agents (who usually set up shop at train stations) often waive the fee normally charged to those looking for factory work.

The agents then use the young women as bargaining chips, offering companies one potential female employee as long as they also take several men.

"They work in the factory and live in the dormitory ? They work there three to four years, earn their dowry and go back home," said Philip Leung, a partner at Commence Partners and chair of the China Business Committee at the American Chamber of Commerce in Hong Kong. "And for the last 10 or 20 years that has worked."

But in the last few years, employers have had to go to more extreme lengths to recruit. Ideal employees are harder to find and recruiting is becoming a tough task.

At the same time, China is pumping out university graduates at a staggering rate, with more than 4 million expected to enter the job market this summer alone. Equipped with MBAs and BScs, none of them will be eager – even if they are willing – to assemble vacuum cleaners.

Alongside the growing recruiting difficulties, average wages are going up.

This year Guangdong Province raised the minimum wage an average of 17.8%. In Guangzhou, the new minimum wage hit US$97.5 per month on September 1 while workers in Shenzhen, which has the highest minimum, could earn just over US$100.

Beijing and Shanghai also planned more modest increases.

Numbers across the country point to a similar pattern. China’s average wage climbed 14.1% in 2005 to US$2,300, according to a report released in May by the People’s Bank of China. By comparison, the consumer price index went up 1.8%.

All this begs the question: how can it be that an economy that created itself on the back of cheap labor is running out of workers for factories and workshops?

"A lot of people are wondering if it is worth it to go for those jobs because the quality of life stinks," said Ames Gross, president of human resources consultancy Pacific Bridges.

Wage hikes notwithstanding, these jobs don’t pay particularly well and workers are less willing to travel far for salaries not that much different than they can earn at home. Employers are now forced to go after new employees, recruiting far from their base.

"An awful lot of China’s expansion has been stage one: mobilization of labor," said Dr Lian Hoon Lim, a principal at consultancy A.T. Kearney.

Move to productivity

Stage two, the search for increased productivity, is approaching. Much of China’s growth to date has been driven by rural-urban migration and the rise of manufacturing. However, as this massive supply of manpower begins to slow down, employers have to look at increasing productivity rather than hiring more people.

Individual workers in China are already fairly productive – statistically, they are more productive than workers in India or Mexico – but there is still plenty of room for improvement in production methods.

"Companies are starting to think about the cost of labor," said Lian.

These domestic changes are having a knock-on effect in terms of global competitiveness. Employers in China now have to pay more than in other developing economies. Skilled labor – software engineers, sales staff, analysts – all earn more in China than in India, according to international human resources consultancy Mercer.

The idea of China as a free-flowing fountain of cheap labor may also be impacted if Beijing introduces a 40-hour working week and codifies contracts. The European Chambers of Commerce says these laws could "force foreign companies to reconsider new investment or continuing with their activities in China".

The search for labor may push employers towards places that have not been traditionally explored, such as manufacturing centers in China’s west and north, where there are many people but the infrastructure is lacking.

For now, however, big employers already operating in areas like Dongguan will have to focus on keeping their operations producing.

"We have a challenge," said Chen, "finding people on time."