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So why are there so many vacant jobs in China's exporting heartland?
02/24/2011 2:32 pm EST
Across China factories are reporting millions of job slots left empty when migrant workers went home for the holiday and never returned to work.
Before the holiday the Ministry of Human Resources and Social Security predicted that enough migrant workers would not return from their holiday trips to their home villages to create a 10% labor shortfall in China’s key factory provinces of Guangdong, Zhejiang, and Fujian.
That prediction may have been conservative. Guangdong, for example, reports 2 million unfilled job slots, according to Caixin Online (English.caing.com).
This year’s shortages of migrant workers has its roots in the rising living costs in China’s eastern provinces, long the heart of China’s export industries, that have, along with higher wages in inland provinces, erased the big pay differences that have long driven millions of migrant workers to leave their families and native villages and travel hundreds of miles to live in workers’ compounds at factories in coastal provinces. The shortages began to be noticeable in 2009 and have increased each year since then.
The vacancies have also fed into a growing debate inside and outside China about when the country’s demographic dividend will come to an end. A demographic dividend results when a country’s population is producing a large number of new young workers every year—and where the ratio of dependents to workers is falling. That falling ratio is a result of a decline in the birth rate due to rising incomes, improving health care, and social decisions such as China’s one-child policy so that young workers have fewer young dependents. At the same time the large number of young workers in the population produces a temporary decline in the dependent ratio at the other end of the life cycle: for a while, the population of old people doesn’t keep pace with the rise in the young population. Since the population has a higher proportion of young workers and a lower proportion of children and oldsters who require expensive education and medical care, the economy grows at an accelerated rate.
Demographic dividends don’t last forever. Populations age when a smaller cohort of children produced by a lower birth rate leads to a slowdown in the number of new young workers entering the workforce each year. China currently has 160 million people 60 years old or older. That’s 12% of the population of 1.3 billion. That number is projected to reach 200 million by 2015 and 400 million in 2044. That’s a lot of coming spending going to healthcare and retirement.
The World Bank calculates that a country’s demographic dividend lasts for about 40 years and that China’s dividend, as defined by its lowest ratio of dependent children and oldsters to workers, dates back to 1968.
From this longer term perspective, the problems that China’s coastal factories are having in filling jobs aren’t just caused by higher wages and more job opportunities in inland provinces. They’re also the result of the gradual end of China’s demographic dividend and the decreasing number of young workers in each annual cohort.
Not everyone agrees on when the demographic dividend will come to an end—estimates range from 2010 to 2015—or if what China’s factories are seeing now is evidence of an end to that dividend. Most projections do show China’s working age population peaking in 2015 and its dependency ratio climbing from 39.1% in 2010 to 45.8% in 2025.
Countries can continue to grow at high rates even after the end of a demographic dividend, but that growth becomes increasingly dependent on improving the education, skills, and productivity of the existing workforce. It’s a tougher job. And it’s likely to be the challenge that China is facing now.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of January see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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