Is China Running Out Of Workers?
Abstract
This paper is a case analysis of the labour market in China. The purpose of this paper is to study the
supply and demand of labour market through the case analysis of Mainland China. This paper has few
main sections. The first section states the labour shortage problem in Dongguan, Guangdong Province,
China and its ramifications. A decade before 2004,when more and more factories were built along these
cities, the increase in labour demand which was represented by a rightward shift of demand curve was
offset by the increase in labour supply (people came from rural regions to work in factories in the cities)
which was represented by the same amount of rightward shift of the supply curve. As a result, total
quantity of labour working in city factories increased but wages remained at the same low level. Since
2004, opening of factories in rural areas, women fleet from coastal cities to rural areas to give birth to
more children, improved living standards in rural villages and government tax incentives and subsidies to
agricultural sector are the four factors causes decrease in supply of rural workers working in factories in
coastal regions. The labour supply curve of coastal areas shifts to the left and so wages goes up and
shortage of labour is resulted in coastal factories. The second section states the proposed solution to the
labour shortage problem and application of the case analysis. Proposed solutions include higher wages to
factory workers and better compensation scheme, moving their production to inland regions or moving to
other Southeast Asia countries.
Case Analysis
Problem Definition and Ramifications – Labour Shortage in Dongguan, China.
Overseas companies “have been shifting their production facilities to China” (Keat; Young, P. 216).
Overseas companies were benefited from the huge amount of cheap labour supply in China. However, it
is no longer true since 2004 when wages goes up about 30%, and yet overseas companies owners have
hard time to recruit enough workers. The labour shortage problem hits most to Hong Kong and Taiwan
factory owners and least to American factory owners due to the fact that workers are attracted to work for
those who pay higher wages. The ramifications of the labour shortage problem are discussed in a more
detail in the following sections.
Situation Before 2004. When overseas businessmen from United States, Malaysia, Taiwan and Hong
Kong first invested and opened factories in cities along the coastal regions of Mainland China, they were
