China’s Labor Shortage

"Early this year, at a job fair held in Fuzhou, the capital of Fujian province in China, more than 50,000 positions designed to encourage farmers to move to urban areas went unfilled."

Knowledge at Wharton has an interesting article arguing that China has both labor shortages and a labor surplus.  It’s the usual explanation: mismatch between who is available to work and who is wanted by employers.  Result: higher wages and benefits.  Over time, more farmers will migrate to the cities, but there’s a limit to the pace of any transition.

Remember that Japan used to be a low cost production location; then it was Korea, then southeast Asia.  With development comes higher wages.  Now, China is such a large country that we won’t use up all of the underutilized people, but the day will come, possibly in my lifetime, when there are no longer any large pockets of poverty to which we can outsource production at low wage rates.  Now that will be transition.

Business Strategy Implication: If outsourcing, take a second look at labor availability.  It may not be as simple a matter as it appears.