A China Paradox: Migrant Labor Shortage amidst Rural Labor Supply

A China Paradox: Migrant Labor Shortage amidst Rural Labor Supply Abundance Kam Wing Chan1

Abstract: A U.S. geographer and noted authority on China’s urbanization seeks to explain the apparent paradox between reported recent shortages of migrant labor in cities in eastern China’s export-oriented manufacturing belt and the abundant supply of labor in China’s rural areas. He examines important socioeconomic contexts often overlooked in the debate over whether China has reached the Lewis turning point (when dual rural-urban labor markets begin to merge and a labor surplus economy is transformed into a full-employment economy), which make possible the existence of such shortages over the short term and in local areas. These include the special characteristics of China’s export industrialization (e.g., preference for workers in the age category 16–30); its immense migrant labor force, constrained under the hukou system; the short-term impacts of China’s economic stimulus program launched in early 2009 in the wake of the global economic crisis; and cycles in the global economy that support or impede export production. Journal of Economic Literature, Classification Numbers: O180, O530, P200, R120. 4 figures, 1 table, 90 references. Key words: China, hukou, Lewis turning point, rural migrant labor, export industrialization, Pearl River Delta, global financial crisis, Asian tiger economies, wage pressure.

INTRODUCTION

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oday, three prices are paramount in the global economy. Most evident are the price of oil and the price of capital, represented by the interest rate. Less obvious is the “China price,” which many believe is caused by China’s undervalued currency, and/or low labor costs, which the world has become so accustomed to during over the past three decades (Harney, 2008). Even those who are aware of the low China labor price generally assume that it is low simply because of the abundance of China’s population. Since China entered the global economy in the early 1980s,2 its billion-plus population has provided a seemingly endless supply of cheap labor for the world. Recently, a series of rather dramatic events in China has alerted us to a new reality—that the China price is on the verge of a tectonic change. Since the early months of 2010, Chinese factories in a few coastal cities have been struggling to find workers to help fill export orders. In July, the media reported that factories in Guangdong have even hired many illegal workers from Vietnam and elsewhere (Yuexin, 2010). This came as a surprise to many observers, because just about a year ago the situation was completely opposite: 23 million migrant workers were laid off as the global financial crisis spread to China’s booming manufacturing cities (Cai and Chan, 2009; Wang, 2010), prompting some serious political and social 1 Professor, Department of Geography, University of Washington, Seattle, WA 98195 ([email protected]. edu). This paper has benefited from exchanges with Arthur Kroeber about China’s demographic statistics and trends, and comments by Richard Forstall, Kingston Tseng, and Yanning Wei. 2 Before the 1980s, China pursued a policy of self-reliance, with limited trade with the world.

513 Eurasian Geography and Economics, 2010, 51, No. 4, pp. 513–530. DOI: 10.2747/1539-7216.51.4.513 Copyright © 2010 by Bellwether Publishing, Ltd. All rights reserved.

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c oncerns (Chan, 2010b; Csanádi, 2010). It is also difficult to conceive that severe labor shortages would occur at a time when China’s working-age population, the world’s largest, has climbed to a new high (reaching 981 million in 2010) and is projected to continue expanding until 2015 (Hu et al., 2010; Kroeber, 2010). The shortages and the abundance appear to be incompatible and paradoxical. In late May, the world was also shocked by news of a serial tragedy related to the treatment of labor in China’s famed export-processing zones: a total of 14–16 suicide attempts of migrant workers (resulting in 12 deaths) have taken place in just the first five months of this year (3 in the last 10 days of May), in a single giant factory complex, Foxconn in Shenzhen, the world’s largest contract electronics manufacturer3 for major brand names such as Apple, Dell and Toshiba (Moore, 2010). The media’s frantic reports in late May have revealed to the world a great deal more about the harsh conditions experienced by young Chinese migrant workers.4 In the same week as Foxconn moved into damage-control mode by offering raises of about 25 percent to workers, multiple serious strikes took place at several Honda assembly plants in the nearby Pearl River Delta cities of Foshan and Zhongshan. Those strikes ended after two to three weeks with the workers winning 10–30 percent raises (China: Migrants, 2010), but it appears that they are not the last ones: workers at another Honda subsidiary in Foshan went on strike on July 12 (Foshan bentian, 2010). Both the Chinese and international media in recent months are full of reports pronouncing a labor “shortage” and “the end of surplus labor” in China (e.g., Zhusanjiao mingonghuan, 2010; Demick and Pierson, 2010). More critically, some observers have argued that China has reached a Lewis turning point (LTP) (Hamlin, 2010; Zhang et al., 2010). The LTP, hypothesized by Nobel laureate Arthur Lewis (1954), is the point when the dualistic labor market in a country begins to break down and merge into one. It is also the point where a labor surplus economy is transformed into a full-employment “normal” economy (Huang and Jiang, 2010). According to Lewis, a developing country’s industrial wages begin to rise quickly at that point when the supply of surplus labor from its rural areas tapers off. In the case of China, reaching this point would signal that its notorious and tenacious dualistic rural-urban socioeconomic structure, which has existed for the entire six decades of the People’s Republic era, and which has been emphatically considered as the root cause of a host of social and economic ills (Wang, 2005), is beginning to end. Reaching the LTP would encourage real hopes of closing the huge rural-urban economic and social chasm in China in the near future. And obviously, the significance of the change would extend far beyond China, as the country is the world’s largest exporter (Garnaut, 2010; Huang and Jiang, 2010). Skeptics, on the other hand, have argued that proclamation of China’s rapid advance to the LTP appears to be premature, because there is still an abundance, not a shortage, of surplus rural labor in the country (e.g., see Yao, 2010). Indeed, whether China had reached the LTP prior to the global financial crisis (and again, more recently in the wake of reported labor shortages in the coastal region) is a topic that has been debated heatedly in the literature (see Cai, 2008; Green, 2008).5 This paper revisits this China paradox of migrant labor shortages amidst rural labor supply abundance by examining some important socioeconomic contexts, which are often overlooked in the debate. The next section explains the special characteristics Foxconn employs about 800,000 workers in China, with 400,000 at the complex in Shenzhen (Barboza, 2010). Foxconn is known for its military-style efficiency and strict, rule-based management of labor (Barboza, 2010a). See also a detailed investigative report about the factory in Chang (2010). 5 In addition to many commentaries already appearing in the media on this subject (e.g., Hamlin, 2010; Socialist Workers, 2010), an international workshop on the Lewis Turning Point was held in Beijing on April 6, 2010 (see Lewis Turning Point, 2010). 3 4

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of China’s export industrialization and its massive army of migrant laborers, which has helped transform the country into the “world’s factory.” Some recent urban and rural demographic data are analyzed. By examining the economy’s both short- and longer-term demand and supply of rural (migrant) labor, this paper explains the co-existence of shortages of “rural” labor and general rural labor supply abundance in China’s “post-crisis” era. The concluding section discusses the broader social and economic reforms required and their policy implications for China’s transition to a single labor market. CHINA’S EXPORT-ORIENTED INDUSTRIALIZATION China’s spectacular industrialization over the past three decades has relied heavily on low-cost exports,6 presumably following the successful model used by the Asian “tiger” economies (Taiwan, South Korea, Hong Kong, and Singapore) in the 1960s and 1970s based on cheap labor (see World Bank, 2009). However, as has been pointed out elsewhere (Chan, 2010b), China has one major distinctive characteristic that sets it apart from the other Asian economies. It has a very powerful socio-political instrument, the hukou (household registration) system, which allows the government to: (a) control the geographical mobility of the domestic population and labor (mainly from 1958 to 1980); and (b) create a two-tiered citizenship, thereby almost completely excluding rural population and labor from state-provided social services (from the mid-1950s to the present) (e.g., Wang, 2005; Chan, 2009a). None of these “tiger economies” has ever created a dual-tiered population and society even remotely resembling that of post-1958 China (Chan, 2010b). Perhaps it is this uniqueness that helps explain China’s enviable position as the world’s dominant producer of manufactured goods, as one journalist puts it, by operating “almost in defiance of the rules of economics, enjoying stagnant wages.… and a seemingly endless supply of pliant labor” (Harney, 2008, p. 273). This hukou system, on top of the pre-existing abundance of rural labor, aggravates the already very weak power of labor and gives rise to a host of fundamental labor issues, described by labor rights advocate Han Dongfang (2010) as, “low pay, the lack of formal channels for worker grievances and demands, and the exclusion of migrant workers from education, health care and social services in the cities.”7 Such an institutional set-up serves well to keep the opportunity costs of peasants (including their labor and land) very low, and hence makes them easily exploitable (Chan, 1994; 2009a; Wang, 2005; Kelly, 2008; Qin and Yu, 2009). Rural labor has since the early 1980s been allowed to move to the cities to work, thereby relieving pressure on the land. This has generated a massive army of “rural migrant labor,” estimated at about 150 million in 2009 (Chan, 2010d), but the labor transferred to the urban areas lacks local hukou (i.e., citizenship) at the destination. In de jure terms, these transferred people are still treated as “rural,” hence they are called “rural migrant labor” even though they now reside in a city. This system prevents migrant laborers from moving upward socially or assimilating into the destination (urban) population; the hukou institution confines them largely within a huge underclass of super-exploitable and low-cost labor. Yet these migrants comprise a highly mobile and “flexible” (temporary and expendable) work force for the export economy geared to changing global demands. This state-created institution, the hukou system, helps to sustain China’s ultra-low labor costs and effectively prolongs the supply of low-cost “rural surplus labor” so that industry, especially the export sector in Exports have contributed directly to about one-third of China’s GDP in recent years (Jacobs, 2010). An extensive literature analyzing the plight of rural migrant labor has been accumulated. Notable examples include Solinger (1999), Wang (2005), Chan (2010b), and many chapters in White (2009). 6 7

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cities like Shenzhen and Dongguan, can draw on a very large pool of labor for a long time, at wage rates only slightly above the rural subsistence level, just as was described by Lewis.8 Even though the economy grew annually at double-digit annual rates over the past 30 years, the real wages of rural migrants remained basically little changed until recent years. This was all the more striking, considering the increases in labor productivity and living costs over the same period. Because of the weak bargaining position of labor, employers in the export industry are also able to “cherry-pick” workers with the most “desirable attributes.” Often these are conceived in Dickensian terms so as to run the lowest-labor-cost manufacturing system possible: stressing the physical abilities of young workers, such as easily trainable dexterity to handle fast-paced, often military-style, repetitive assembly work (especially in electronics industry) and endurance for long work-day hours (routine overtime daily work, and often for 28–29 days per month); and their “work attitudes” such as obedience to orders and “capacity” for long periods of residence in dormitories or barrack-type shelters.9 According to one careful study, the Chinese average unit labor cost in manufacturing was about 3 percent of the same average in the United States in 2006.10 Those desirable labor qualities are mainly available in young, mostly unmarried, workers. Indeed, the great majority of Foxconn’s 400,000 employees in Shenzhen fit the above description well. As a result, rural migrant labor hired in the export sector falls overwhelmingly in a highly selective age cohort between ages 16 and 30, with new workers recruited in the last decade typically before they reach even age 20. With their youthful eyesight and high manual dexterity, combined with the increasing prevalence of schooling beyond six years in the countryside, young rural migrants are more educated than their predecessors and better suited for assembling modern electronics, which often involves handling small parts and exacting specifications. After spending their youthful years in these factories, older workers, especially if married, generally cannot continue to work there because they cannot work as fast in those assembly jobs, or do not have skills or opportunities for other types of jobs that may better suit their age (such as managerial and clerical). The departure from the factory job often means a total withdrawal from the industrial labor force. This may occur at the initiative of the employers or the employees themselves, owing to a host of “push” factors, such as difficulties of finding affordable housing outside of dormitories,11 intolerance of long hours of work, low pay, little time for family, and/or lack of access to education for their children.12 In short, the older labor becomes too “costly” to both the industrialists and the local government. The end result is that the work span of these rural migrant workers in factory jobs is substantially shortened from the usual 40 years to only 15–20 years. Combined with limited job training and useful skills gained from working in these industrial jobs, the short work span points to a very consumptive, wasteful, and extremely “low cost” (to the employer) way of using labor. In net terms, 8 Graphically, this depresses the labor supply curve relative to the position it would occupy based on the market (see Fig. 2 below). And quite contrary to popular media interpretations, the hukou system is not being abolished (Chan and Buckingham, 2009). 9 See detailed works by Lee (2009), Chan (2001), Pun (2005), and Harney (2008). The acclaimed documentary Manufactured Landscapes (2006) directed by Jennifer Baichwal with Edward Burtynsky provides some stunning graphic details of this group and the industrial process. 10 Findings by Erin Lett and Judith Banister, cited in Kroeber (2010, p. 42). 11 Although many cities now provide government-subsidized public housing for the poor, this type of affordable housing is not open to rural migrant workers, who do not have local hukou. 12 Even young workers, such as those at Foxconn, complain that long work hours leave them very little time for meeting friends, including those of the opposite sex. The gender balance of the migrant workers in certain exportprocessing centers such as Dongguan is also heavily skewed in favor of female workers.

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Fig. 1. Age profile of Shenzhen’s population, 2005. Source: Compiled by author from 2005 One Percent National Survey data in Guangdong Province (2007), SC and NBS (2007), and BM and BMBS (2007).

the short work tenure means a significant reduction in the aggregate supply of labor to the industrial sector, but a corresponding increase in rural unemployment or underemployment. This high selectivity of age is most vividly shown in the “forever-young” age profile of the population of Shenzhen, one of China’s two largest export-processing centers (Fig. 1). Over more than three decades of development, accompanied by huge in-migration, this city’s de facto population has grown from less than a million to about 10 million today, about 80 percent of it migrant workers.13 However, Shenzhen’s age profile remains extraordinarily young, with the age cohort 20–29 accounting for about 40 percent of its population in 2005, compared to an average of only about 16 percent for all cities in the country. On the other hand, the rural population age structure exhibits a sharp depression in the same cohort (only 11 percent). This attests to the outcome of a labor deployment process one eminent sociologist called “plucking the young and the able from the countryside and dumping the old and the sick back” (Lu, 2006).14 RURAL LABOR SUPPLY AND DEMAND: AN ANALYSIS The Model While the typical Lewis (necessarily stylized) model considers rural labor as uniform in quality, in reality, especially in a vast country like China, rural labor is quite differentiated, for example by age (which is also a proxy for education and certain physical “aptitude” described above), geography, etc., as pointed out by Garnaut (2010). The rural labor supply curve is not one, but many. For the sake of exposition, two types of rural labor—young and older—are considered in Figure 2. Because the export industry uses only young labor (say, ages 16–30), the supply curve (S2) represents the supply of only young rural labor, not all rural labor, with 13 Estimates of the total population of Shenzhen vary because of its highly unstable migrant population. We do know that its local population (those with local hukou) is about 2 million in recent years (see Chan, 2009b). 14 The same pattern can be detected by comparing the age distributions of the “migrants” and local population in the 2000 Census, as has been done by Cai and Wang (2008, Fig. 7).

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Fig. 2. Stylized model of supply and demand for rural labor in China in 1980–2010.

the D’s representing the demand curves of the expanding export industry. As usual, the S curve is flat on the left side, reflecting its initial surplus condition, but it finally bends upward on the right as young rural labor becomes scarce relative to expanding demand (successive shifts from D1 to D4). In this process, the hukou system helps to depress the supply curve from S1 to S2 in the later stages, prolonging the “unlimited surplus labor” phase. While expansion of demand for workers from D1 to D2 will not trigger an increase in wages in the typical “unlimited surplus labor” condition in the Lewis model, the shift to D3 still will not trigger it either, thanks to the hukou restrictions.15 But wages will ultimately rise when the demand shifts further to the right (D4), in which case supply of labor becomes scarce even with the existence of the hukou system. It will be argued below that the D4 stage, and the resulting higher wage rates, represents the current situation in China. As for older rural labor, also generally less educated, one can conceive a different supply curve, S3, below the supply curves for young labor, indicating that it commands a slightly lower wage rate. The D’s here are used to represent the demand shifts of the overall urban demand for older migrant labor. S3 remains basically flat, indicating its abundant supply and continuance in the “unlimited surplus” phase, despite the expansion of the demand, even up to the D4 stage. The Supply Side The culmination of the implementation of stringent family planning policy, along with economic growth in the last three decades, has made China one of the world’s rapidly aging societies. The total fertility rate, for example, dropped from around 5 in 1970 to below 3 in the 1980s (Gu, 2009), and further declined to an estimated 1.65 only in 2009 (Hu et al., 2010). This has slowed significantly the growth of both the total population and working-age population. Because of the past declining fertility and the continuing fertility below replacement level, the population is rapidly aging, as illustrated in the projected drastic change of the age distribution from 2000 to 2050 (Fig. 3, based on Gu, 2009, p. 16). 15 I surmise (Chan, 2010d) that China reached the D3 stage in the mid-1990s after a surge in demand for migrant workers.

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Fig. 3. China’s population structure, 2000 (shaded) and 2050 (projected; outlined).

The decline in fertility has reduced primarily the supply of young rural labor, the essential pool of labor for China’s export industry, although the drop in fertility is less steep in the rural areas than in the cities. Table 1 employs two major sources of de facto population16 age data to show the changes in the last decade.17 The upper rows of Table 1 report the population numbers by five-year age group under 64; the lower rows provide some relevant consolidated age groups for our analysis. While theoretically the rural residents in all the working-age groups are prospective rural–urban transferees to the urban areas, in reality, especially in the last two decades, most rural residents tend to exit the countryside for the first time in the young adult ages, much earlier than their predecessors. These young migrants are dubbed “second-generation migrants” in the literature, being born between 1980 and 1995 (Liu and Cheng, 2008). According to a recent authoritative report compiled by the All-China Federation of Trade Unions (ACFTU, 2010), the average age of first departure from the countryside of those born in the 1980s and 1990s was 18, and 16, respectively. This “second-generation” cohort is the source from which the export industry draws most of its workforce. Given that many rural residents begin to leave the countryside at around 15 and 16,18 the de facto rural population in the age group 15 and above excludes a large number of people who have already left for the urban areas, and includes those who for a variety of reasons do not want to leave or have not left the countryside. The numbers of the age cohort 10–14, 16 For the significance of differentiating the de facto population from the de jure counts, see Chan and Wang (2008). 17 The two sources are Hu et al. (2010) and China’s 2005 National Survey (NBS, 2005). The baseline age population figures in 2000 are adjusted census data by Hu et al., and the 2010 figures are their estimates derived from data of more recent years (Hu, 2009); the 2005 figures are computed by the author by applying the unadjusted rural age percentages reported in China’s One Percent National Population Survey in 2005 to the de facto rural population in 2005 (745 million). The 2000 Census data are noticeably undercounted especially in the very young age groups (see Chan, 2003 and Wang, 2004). It is very likely that the 2005 age data also suffer from some misreporting (Huang and Xiao, 2009). However, after placing them side-by-side with the adjusted data for 2000 and projected data for 2010 in Table 1, the three sets appear to be broadly consistent and useful for our analysis. 18 Age 16 is the legal working age, but many younger workers are able to circumvent this restriction by using another person’s ID card (see Barboza, 2009a).

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Table 1. Distribution of De Facto Rural Population by Age, 2000–2010 (in millions) Age group

2000

2005

2010

0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65+ Total

57.1 65.0 87.8 59.6 52.9 67.7 76.3 63.6 46.9 52.8 40.2 29.8 26.3 57.8 783.8

44.2 51.6 67.6 65.3 40.2 41.7 56.0 68.9 60.9 48.3 55.7 41.8 31.1 71.1 744.5

43.3 47.7 53.3 59.4 66.0 36.1 34.2 49.9 61.7 55.2 42.3 48.0 35.8 71.6 704.4

A. 10–14, five years’ total B. 10–14, per year average C. 36–64, five years’ total D. 15–64,a five years’ total

87.8 17.6 259.6 516.1

67.6 13.5 306.8 510.0

53.3 10.7 292.8 488.5

Total working-age population. Source: Compiled by author from SC and NBS, 2007; Hu et al., 2010.

a

however, do not have this complication, and they can be treated as the pool of rural workers for the export industry in the next five years, after allowing for the extremely low mortality rate of this age group. Based on this, the total numbers of available young workers for the export industry are 88, 68, and 53 million in the five-year periods 2000–2004, 2005–2009, and 2010–2014, respectively—or an annual average of about 18, 14, and 11 million, respectively (Table 1, rows A and B). In a short span of only 15 years, the size of the pool will have dropped by about 40 percent, which is opposite to what is projected to happen on the demand side of the labor balance ledger (see below). Hence, an increasing tightness of the young labor market over time is to be expected under normal circumstances. As it happens, to be exact, the young labor supply situation was greatly eased for about a year from late 2008 owing to the global financial crisis (Chan, 2010b). On the other hand, the rather deplorable (mis)treatments of migrant labor by employers during the global crisis period in the Pearl River Delta19 also discouraged some rural migrants from coming back to seek work in the region later, even when jobs were available. Some were simply not at all eager to return to the exploitative grind of the “world’s factory.”20 This had the effect of These include workers being laid off without receiving their wage arrears and severance pay (Chan, 2010b). As one young migrant worker related in May 2010, “I am no longer willing to put up with the hardship in the city like my father did” (cited in Shen, 2010). 19 20

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reducing the labor supply that otherwise would have been available for those factories. At the same time, the general improvement in rural economic conditions in the inland region of China in the last few years owing to the policies of the Hu-Wen administration (Chan and Wang, 2008; Kroeber, 2010), and especially the creation of millions of new jobs by the fiscal stimulus package in 2009 in the interior (see below), also kept many young rural laborers from migrating to the coast. However, these considerations do not change the overall picture with respect to the rural labor supply: it remains plentiful. While Table 1 shows that there was a reduction of about 28 million in the rural working-age population in the last decade, the rural sector remains grossly overstaffed today. Currently, the rural working-age population still stands at close to 490 million, 60 percent of which falls into the age category 36–64. Even assuming a low laborforce participation rate of 75 percent, this still means that about 368 million jobs are needed. Excluding roughly 80 million who work in non-farm jobs in nearby townships (NBS, 2009b), the remaining 288 million on the farm is still far greater than can be absorbed by China’s 120 million ha of arable land. Many estimates done before the financial crisis show that the minimum work force needed to sustain China’s agriculture at the current level of technology was about 150 million (e.g. Green, 2008; Han et al., 2009).21 While the rural working-age population may have decreased by 10–15 million over the past two to three years due to the decline in fertility earlier, there is still an immense rural labor surplus exceeding 100 million.22 Even if the stimulus projects in 2009 have lured away, say 20–30 million rural workers (see below), the surplus remains colossal, much higher than the figures used by some observers.23 The Demand Side In contrast to the gradual decline in the supply of young rural labor, China’s export sector, which primarily uses young labor, recorded phenomenal growth over the past 10 years, especially after China gained accession to the WTO in 2001. As illustrated in Figure 4, exports’ grew at annual rates exceeding 20 percent throughout the period 2001–2007. In nominal terms, the compounded growth rate was a whopping 580 percent over the same period; in real terms, growth would easily be more than 400 percent. During roughly the same period, the total amount of rural migrant labor increased from 105 million in 2002 to 140 million in 2007 (Cai and Chan, 2009), averaging a net increase of about 7 million per year. According to Kroeber (2010), in 2003–2008, 50 million net new positions were created in manufacturing, and 39 million in services. In the peak years of 2002 and 2003, the annual growth rates of exports shot up to more than 30 percent, putting tremendous pressure on the young rural labor market and creating the first reported major “labor shortage” in the coastal region in 2004 and 2005 (Goodman, 2004; Barboza, 2006). The export economy began to slow down in the second half of 2007, before being devastated by the global financial crisis beginning in late 2008 (Liu et al., 2009). In 2009 China’s exports dropped on an annual basis for the first time in the last 30 years, by 16 percent (Workman, 2010). The recession led to massive layoffs of about 23 million rural migrant workers, as of early 2009 (Cai and Chan, 2009; Wang, 2010). However, at the same Higher estimates are used by others, such as Cai and Wang (2009a, Table 7.2): they range from 178 million to 228 million. For comparison, the United States employs about 10 million farm workers (illegal migrant workers included) on a total acreage larger than China’s (see DeSilver, 2006). 22 Cf. Zhong and Lan’s (2009) estimate of 131 million surplus rural workers in 2006. 23 One former IMF economist asserted that China’s rural surplus labor has fallen to only 25 million in 2010, from 127 million in 2007 (Hamlin, 2010), which is not possible based on available employment studies. 21

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Fig. 4. Year-on-year growth of annual exports, 2001–2009, and monthly exports, 2009 and 2010 (percent). Source: Compiled by the author from NBS (2005, 2009a) and Chao chukou (2010).

time, ironically, the financial crisis also helped China’s low-cost manufactures gain even more market share in the world (Barboza, 2009b). For example, China increased its share of all the USA’s imports from 15.6 percent to 19.1 percent in the 12 months from November 2008 (Harney, 2010). China’s export sector has recovered very quickly since mid-2009. By mid-2010, its exports had largely regained their pre-crisis level. Record surges in monthly growth of exports (for example, 46 percent growth in February 2010 relative to the same month in 2009) inevitably created a huge and sudden demand for large numbers of young migrant workers, which could not be filled, at least in the short run (Demick and Pierson, 2010; Hamlin, 2010). Some shortages are caused by a structural mismatch of skills. Guangdong, for example, reported outstanding job vacancies of about 750,000 in mid-2009 at the beginning of the recovery; these jobs were mainly in the skilled technician categories such as computer engineering technicians and mechanics, for which most migrant laborers were not qualified (Guangdong, 2009). At the same time, interestingly, these shortages are also partly “caused” by China’s mammoth anti-recession stimulus package in 2009, with its main goal of achieving an 8 percent GDP growth rate in 2009, through investing in industries and new infrastructure, such as high-speed rail lines. While these new projects were aimed at replacing the GDP lost by falling exports, they also created millions of construction jobs for low-skilled rural workers, including laid-off migrant laborers who had returned to the interior. Many of these projects are in the interior provinces24 and the work created is closer to the migrant workers’ homes and preferred on this ground. Systematic data about the total number of jobs created by these stimulus projects are not available, but by use of an input-output simulation, Cai et al (2010) estimate that the total number of non-agricultural jobs generated would be about 50 million. One BBC journalist also reported that about 20 million jobs were created by the rail projects alone (BBC, 2009).25 Inasmuch as two-thirds of the investments went to construction, it is almost certain that easily half of the jobs created would go to the rural-hukou population 24 As a result of the stimulus, fixed-asset investments increased by 26.7, 38.1, and 42.1 percent in the eastern, central, and western regions, respectively (Economist Intelligent Unit, 2009). 25 Another report, from China.com, states that 600,000 jobs were created by the Beijing–Shanghai high-speed rail project, one of 12 such projects undertaken in the fiscal stimulus program (Jinghu gaotie, 2010).

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(including returned migrants), who would be attracted to jobs seeking low-skilled, manual labor. Such an immense surge in demand for low-skilled labor would put a lot of wage pressure on the rural labor market, especially in the short run. The Shortages of Migrant Labor Media reports about factories having difficulties in recruiting young rural labor in a few coastal cities started to receive attention in February of this year after the Chinese New Year interlude. These shortages have forced many employers to raise wages.26 This is driven by a host of internal and external factors, the two most important of which are the gradually dwindling stock of young rural labor, and the sudden rise in demand for it, primarily fueled by the rapid recovery of exports, combined with the more temporary labor demand of the stimulus projects. Other factors have also played a role. Migrant workers have shown increased productivity over the years (partly because they have become more educated), but wages generally have not caught up with that change. There is also a structural mismatch between labor and skills, as well as a rise in workers’ awareness of their rights (Barboza and Tabuchi, 2010). It is also likely that some of the reported shortages, in response to such rapid surges in demand for workers, are simply “frictional”—it will take time for job information to travel and for the supply to gradually adjust to the demand. China’s vast geographical extent and large rural population will also remain a barrier to an integrated national labor market for the coming two decades. While there is a “famine” in the young ages, a vast ocean of unemployed or under employed rural labor, mostly ages 35 and above, remains, the size of which is estimated at close to 100 million (Han et al., 2009). In other words, the depletion of young surplus rural labor is far from being the exhaustion of all surplus labor in the countryside. The situation is still very different from the full-employment scenario postulated in the Lewis model when the “turning point” is reached. The co-existence of migrant labor shortages and large surpluses in the rural sector may be quite unique to China’s industrialization and urbanization experience, because of the prolonged and continuing rural and urban social segmentation. It speaks perhaps to more serious wage depression of rural labor in China because of the double burden of demography and institutions, as elucidated above. Shortages in only a specific age labor segment, even if permanent, are a far less significant sign of progression to the ultimate demolition of the dual labor market than one that is based on close to full employment of rural labor at large. CONCLUDING DISCUSSION This paper has provided a fresh look at the issue of the LTP by going beyond the narrow confines of economics to examine the broader contexts within which the shortages of migrant labor have occurred. It has also presented some relevant rural and urban demographic data, which have not been used by previous researchers. The paper has underscored the important role of the hukou system in prolonging the phase of rural surplus labor in China and helping furnish the economy with plentiful cheap labor. Because of the rural labor’s weak bargaining power and protection, and the general disenfranchised position of the rural-hukou population, 26 There are reports of wage raises of differing degree, including some that are more statistical than real (Zhusanjiao qiye, 2010).

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China’s export industry for three decades was able to rely almost exclusively on young labor for its factories and at very low wages. It is evident that the alleged labor “dearth” in 2004–2006 and currently point to the rising opportunity cost of young rural labor, including some with technical skills. But often employers are so used to the low wages that they are not willing to raise the pay or provide benefits (Zhang, 2005). Instead of declaring triumphantly that China is already at the LTP and can wait for the market to help solve its serious rural problems, it is more accurate to propose that China has belatedly begun the Lewis turning “period”27 after pursuing rapid industrialization for more than half a century, just considering the People’s Republic era. Even then, one should note that this rise in wages is premised almost totally on a rather fickle, and likely cyclical, jump in external demand and, in the current situation, partly fueled by the one-time surge generated by the fiscal stimulus (which is set to end in late 2010). In the bad years when the world economy tanks, as it did in 2009, an opposite swing, almost a nosedive drop, of the export industry occurred, and some 23 million jobs of rural migrants were shed. In fact, because most export manufacturers, especially the smaller ones in the coastal region, operate on a super-low-cost labor and low-profit-margin model, they are extremely vulnerable to any even tiny change in costs in oil, currency, etc. which are quite unstable in today’s global market.28 There are already concerns about the likely lower growth rates of China’s exports in the second half of 2010 and in subsequent years (Waimao, 2010). As the current tight labor market in the young cohort is not created by the Chinese economy itself, but likely by cyclical (perhaps ephemeral) forces beyond China’s control, the situation is different from a more sustainable progression based on domestic demand, as assumed by Lewis for a large country. Going forward, if China were to experience the super-high growth rates of exports of the first eight years of the 21st century (which added about 7 million rural migrant workers in net terms each year), then it would still take another decade or more to exhaust the entire rural surplus. In the post-crisis times, one is inclined to think that China will not be able to grow exports as fast as it did in the past, partly due to additional protectionist measures undertaken by other countries and increased labor costs in China. The current rapid wage gains are not only localized in specific age segments but are mostly confined to a few places in the coastal region (China’s Labour Famine, 2010). Some wage increases have occurred in the rural areas of a few provinces in recent years. However, this is likely an outcome of a general improvement in rural economic conditions, as explained earlier, not necessarity due to labor shortages.29 By and large, the economic (and political) power of the whole rural labor overall (including migrants) remains very weak in China. Migrant labor’s plight has even prompted Permier Wen to openly urge better treatment of migrant workers: “Your workers, your children,” he said, amid the country’s recent rising public concern over the wave of labor disputes and treatment of young migrant labor (Your Workers, 2010). The “China price,” reflecting mainly labor costs, is belatedly rising, as it should have been. It might have already occurred in some trades in recent years, according to a number of observers (cited in Harney, 2009). Wage gains are generally good for China at present. Giving a slightly larger share of China’s growing economic pie to the rural-hukou population and allowing it to consume more will help China rebalance its economy by increasing household 27 Garnaut (2010) distinguishes between turning “point” and “period,” the latter suggesting that a much longer time is needed to gradually exhaust the rural labor surplus. 28 One estimate suggests that if the yuan (RMB) appreciates by 3 percent, the profits of some manufacturers may fall by as much as 50 percent (Renminbi, 2010). 29 Lewis (1954) pointed out that too. See also a discussion in Garnaut (2010).

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consumption, an urgent task for the Chinese government in the wake of the recession, as to build a more sustainable domestic consumption–led economy (Kroeber, 2010; SCB, 2010). It is widely agreed by both academics and policymakers in China that the economy’s heavy dependence on exports over the past two decades is a reflection of a major structural problem of insufficient domestic consumption demand. I would argue that the root cause of this sluggish demand is the meager income of the rural population and migrant workers. Another round of wage increases for migrant workers will also help narrow China’s rapidly widening income inequality. Wage increases for low-skilled labor also will make Chinese exports more expensive, helping redress the current global imbalance of trade (Zhang et al., 2010). Some have also suggested that the rising China wages are giving room for low-skilled workers in other developing countries to demand higher wages too (Ross, 2010). But to attain a truly single rural-urban labor market in China, envisioned as the graduation of a developing economy by Lewis and others, greater efforts on removing barriers to the urban market are needed. This will require broader reforms, especially of the hukou system, to allow migrant laborers to settle in cities, to generate “genuine” and “full” urbanization, which will increase household consumption (Chan, 2010c; Green, 2010; Huang, 2010). At the same time, the government needs to develop a social safety net (such as a portable pension) system for migrant workers and their families, now that they are detached from the land, their original means of livelihood. This will help reduce the cost for rural labor who live in cities and attract a more reliable supply of labor to the urban areas. I have suggested elsewhere that as a first step, the government should consider offering local hukou registration to skilled migrant laborers with regular employment, whether in the small or big cities (Chan, 2010a). China badly needs these workers, who are in short supply, to help move manufacturing up the value chain. Employers need them too to operate the more sophisticated equipment that is required in that upgrade. Skilled workers also make more money, and so can help fund social services within cities. For the workers’ part, a local hukou would allow them to receive health, retirement, and unemployment benefits, and would entitle them to send their children to local schools. Albeit still in a limited way, Guangdong has decided to make this first move, and will offer urban hukou to 1.8 million outside migrant workers in the coming three years based on a point system (Tam, 2010). In the face of shortages of young labor in the export industry, there would be incentives for industrialists to hire those beyond the narrow age spectrum to ease the wage pressure. Giving middle-aged and older migrant workers gainful employment will have broader economic and social benefits, far beyond the narrow short-term calculus of export industrialists. Gainful employment of the older rural migrant labor force also will greatly relieve the serious burden of financing retirement in old age and address in part the issue of “getting old before getting rich” in the countryside which will haunt China in the not too distant future if not dealt with in a timely and adequate manner (Cai and Wang, 2009b). Experience in the Asian “tiger” economies in the 1980s and 1990s and China’s state-owned factories shows that manufacturing and low-end service jobs can be powerful absorbers of older low-skilled labor. There is also potential for China to greatly expand the service sector, including the low-end segment (such as cleaning and domestic services), in cities to absorb older labor from the countryside. REFERENCES ACFTU (All- China Federation of Trade Unions), “Quanzong guanyu xinshengdai nongmingong wenti de yanjiu baogao (Research Report on the Problems of the New Generation of Rural Migrant

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