Labour shortages in some regions and industries coexist with underemployment and unemployment in others.
Companies in coastal China have been reporting recurring labour shortages for the past decade. However, the ratio of job vacancies to job seekers is even greater in low-tier cities and in western and central China.
What next
Widespread underemployment in rural areas and small cities means a sizeable potential labour force will be available if the government improves vocational education and reduces discrimination against migrant workers in cities. A significant proportion of the rural population is employed or self-employed in small, low-tech companies that will likely disappear if the economy moves up the value-added chain.
Subsidiary Impacts
- Training the young with market-relevant skills is crucial to increasing labour productivity as China moves up the value-added chain.
- A focus on vocational training will help address the education mismatch, but the education it offers is of low quality.
- Poor working conditions in service sector jobs will create a growing labour unrest problem in these sectors unless addressed.
Analysis
China’s working-age population peaked in 2011. Between 2012 and 2017 it fell 2.8%.
However, the country’s labour shortage arises not from an absolute shortage of working-age people, but rather a shortage of those people willing to take the jobs available and equipped with the necessary skills.
The main factor is structural reorientation from manufacturing to services and from coastal areas to inland areas, which has been underway for several years.
It is also due to an education mismatch:
- China lacks skilled workers, while older, unskilled workers face a competitive job market.
- There is a mismatch between the education of university graduates and the skills needed by many potential employers.
Despite labour shortages, salary growth has been falling for a decade and will probably continue to decline due to slowing economic growth and the China-US trade war.
Services versus manufacturing
One reason factories have difficulties recruiting is that young Chinese choose to work in the service, delivery and ‘sharing economy’ sectors instead of on assembly lines. By 2017, some 70 million people worked in the sharing economy, up 10 million from the previous year, while employment in manufacturing fell by 2.5 million.
Labour conditions in factories are poor and salaries low. For example, the national average salary in food delivery exceeds that in the manufacturing sector.
Workers in delivery and sharing economy jobs are disproportionately young. In food delivery, nearly 70% are younger than 35. In part this is because the work is often gruelling and dangerous, and older workers cannot take the physical demands or will not accept the risk of injury. However, it is also because young people choose these jobs for their greater flexibility and higher salaries, and because they are perceived as ‘cool’ and make them feel less ‘like robots’ than factory work.
Working conditions in services are not necessarily better than in manufacturing
Return migration
Urban labour shortages are worsened by return migration to rural areas.
In 2018 the rural migrant worker population in the Pearl River Delta fell by 1.86 million (3.9%), to reach 45.4 million.
Return migration is driven by:
- living costs in cities rising more rapidly than in the countryside, with urban salaries failing to keep pace;
- policy incentives such as easier access to financing and land for entrepreneurship (see China’s boom in entrepreneurship comes at a heavy cost);
- discriminatory policies that block migrants' access to urban public services; and
- fast economic development in the countryside.
Demand for labour is greatest and fastest-growing in central and western regions and lower-tier cities. Return migration is failing to keep up.
Unemployment
Registered urban unemployment figures have remained around 4% for the last 15 years (with a historic low of 3.67% in the first quarter of 2019). Urban unemployment figures based on surveys are higher (5.2% in the first quarter of 2019), but even these statistics do not capture unemployment and underemployment in rural areas.
Labour shortages coexist with unemployment and underemployment
Heavy industries in decline, such as coal, steel and cement, are laying off workers as a result of excess capacity, tougher environmental standards and weak economic growth. The trade war with the United States has also taken a toll on the manufacturing industry and reduced exporters' demand for labour.
The economic slowdown and overcapacity have resulted in slow salary increases. Between 2010 and 2017:
- average wage growth slowed to 7.7% from 13.5%;
- manufacturing wage growth to 8.4% from 15.4%; and
- the increase in the minimum wage to 5.0% from 16.6%.
Instead of raising salaries, many domestic and foreign-funded enterprises have relocated from coastal areas to inland provinces or to South-East Asia, where labour is cheaper.
Education mismatch
What hurts both workers and companies most is the mismatch between skills on offer and skills in demand.
Skilled workers, mechanics, operators and technicians are in strong demand, with job opening-to- application ratios of two or more. Older, low-skilled workers, meanwhile, have difficulties finding jobs and are the ones most hurt by automation.
University graduates also face a tough labour market. The number of new college graduates has soared over the last two decades, with more than 8 million in 2018. Not enough of them are willing or able to fill the vacancies for skilled workers. They struggle to find jobs corresponding to their expectations, resulting in low job satisfaction and high turnover.
Vocational training
The 2018 Government Work Report announced that 100 billion renminbi (14 billion dollars) from unemployment insurance funds will be dedicated to coordinating and improving vocational training throughout China.
In April this year, a State Council executive meeting announced that enrolment in higher vocational education would be increased by 1 million people, in particular in central and western regions, and in the preschool education, nursing and housekeeping sectors. Retired military personnel, laid-off workers, migrant workers and new professional farmers will be particularly targeted. In total, the meeting called for training 15 million people this year.
The labour ministry also released the ‘New Generation Migrant Worker Skills Improvement Programme (2019-22)’. This requires localities to strengthen vocational training for a new generation of migrant workers. Cities are building ‘vocational education parks’ and setting up online and offline recruitment platforms to match workers and companies.
However, many vocational schools struggle to attract students. They lack prestige compared with traditional education and often offer low-quality training.
The government also relies on companies to provide vocational training. Last November, the labour ministry unveiled a plan to launch a new work/study apprenticeship system which would train 500,000 apprentices by 2020, and 500,000 more in 2021. This extension of a pilot programme launched in 2015 mainly targets high-skilled and medium-skilled workers for a training period of one to two years. Companies receive subsidies for participating.
To facilitate youth employment, the government last December announced that an internship subsidies programme for college graduates would expand to include unemployed persons and young people aged 16-24 who have left school within two years. Subsidies will be given to 1 million people by 2021. Priority will go to students from low-income families.
However, apprenticeship and internship programmes face criticism for giving enterprises access to cheap labour without delivering the training promised. This problem gained international attention earlier this month with leaked documents that allegedly show Amazon (and Apple) supplier Foxconn abusing an internship programme in order to use schoolchildren as cheap labour.
Companies are reluctant to provide in-house training because they are concerned that employees will take advantage of those skills to find work elsewhere.
This article was first written for the Oxford Analytica Daily Brief, which is the copyright holder.