Significant characteristics of the labor force in China

China’s emergence as a global power during recent decades has attracted attention of scholars across the world. The reason is that China’s growth has not only affected the nation itself but it has global implications as well. While making an effort to understand the growth history of any nation, one cannot overlook the manpower of that country. As such, this article focuses solely upon the labor force of China. The following can be listed as the main characteristics of Chinese labor force.

Manufacturing employment

China is frequently called as the ‘workshop to the world’ (Dobbs et al., 2012). Manufacturing employment in China includes all those who are employed in established manufacturing firms while excluding individuals and those working as small groups in informal manufacturing units. The US Bureau of Labor Statistics claims that manufacturing employment in China has increased over the years. From 85.9 million in 2002, the total manufacturing employment in China reached 99 million in 2009. The following table reveals the growth of manufacturing employment in China during 2002-2009 (BLS, 2013).

 Year Manufacturing Employment
Total Urban Rural (TVE)
2002 85.9 30.3 55.6
2003 86.4 29.8 56.5
2004 88.6 30.2 58.4
2005 92.0 31.3 60.7
2006 94.9 32.8 62.1
2007 96.9 34.1 62.8
2008 98.5 34.5 64.0
2009 99.0 34.6 64.4
Note: TVE refers to town and village enterprises.
Source: U.S. Bureau of Labor Statistics, International Labor Comparisons.

Low cost labor

Another significant characteristic of the Chinese labor force is that it is cheaper. Although there has been improvement in average hourly compensation of manufacturing employees over time yet the hourly rates of Chinese labor are far less in comparison to many other economies of the world (Banister, 2013). The following figure reveals the fact. This also acts as the primary reason that China is globally recognized as a manufacturing hub. The low-cost manufacturing facilities it offers to the companies across the globe makes China a preferred choice for manufacturing (Dobbs et al., 2012).

Average hourly compensation costs of manufacturing employees, selected economies in compared to China, 2002-2009

Average hourly compensation costs of manufacturing employees, selected economies and regions, 2002-2009.

High female participation in the labor force

China has the world’s highest female labor participation rate. Around 82% of the females in China are employed (Graebel, 2013). The benefits of gender diversity in the workplaces have been asserted by many in recent past. An article in the Financial Times confirmed that women bring with them empathy and intuition to the leadership which means better awareness of others’ needs. The article also provided that women in the workplace lead to better communication and collaboration. In context of China, the article mentions that Chinese women prefer accepting more critical job assignments as compared to women in the US and the UK (Medland, 2012). However, there is another side of the coin; being the highest number in terms of female participation in China, this also can mean there is very little scope to enhance the size of this workforce as optimum has been achieved.

Lack of highly-skilled workers

A recent study by McKinsey claims that China is soon going to face an acute shortage of highly-skilled workers in its labor force. Highly-skilled workers are those who have college or post graduate degrees along with vocational training in their particular skills (Adams, 2012). The study asserts that by 2020, China would need 23 million more college-educated workers than it can actually supply. While there will be excess supply of medium-skilled and low-skilled workers by 5 million and 20 million respectively. The country would not be able to meet the labor force requirements of highly-skilled labor (Dobbs et al., 2012). The main reasons that can be identified for  the increasing demand of highly-skilled labor include:

  • A shift from traditional agricultural economy to manufacturing and service-oriented economy.
  • China’s rapidly aging population.
  • Growth of service industry requiring more skilled workforce.

The following table reveals the predicted situation.

Country Name High-Skill Workers Medium-Skill Workers Low-Skill Workers
China -23 million 5 million 20 million
Projected labor demand and supply in 2020.
Source: Graebel, 2013.

High proportion of temporary workers

Yet another significant feature of Chinese labor force is that they are employed in high numbers as temporary workers in Chinese factories. Temporary workers in China, often known by two terms, ‘linshigong’ and ‘paiqiangong’, meaning ‘short-term workers’ and dispatch workers respectively. They are mostly hired through labor dispatch companies. The official statistics provide that temporary workers comprise 20 percent of China’s urban workforce of 300 million. The proportion of temporary workers in individual factories is even more that goes up to 50 percent of the total work force (Slaten and Chao, 2013). On one hand, hiring temporary workers offer cost benefits to employers. On the other hand it offers the freedom to walk out to workers. But temporary workers are not entitled to any insurance or other benefits and also do not enjoy any job security.

How long will China be able to supply cheap labor?

The above discussion reveals the general state of human resources in China to some extent. The discussion leaves no doubt that China earns competitive advantage on the basis of its cheap labor force. However, an interpretation of these salient features of Chinese labor force also leads to the conclusion that these are inter-related. A shift from agriculture to manufacturing and service economy created the need for high-skilled labor in China but the Government’s ‘one child policy’ restricted the workforce size and also led to an aging workforce. Moreover, since female participation in the workforce is already high, not much can be expected from this segment to contribute to workforce size. This became an important reason behind Chinese firms compelled to hire temporary workers with low skills. Due to their low skills, these workers are convinced easily to work at low average hourly compensation. And being temporary workers, they also do not become entitled to any benefits. Again, at such low wages, the labor force cannot be expected to polish their skills.

References

Ankita Agarwal

Analyst at Project Guru
Ankita is working with the editorial board of Project Guru as a Research Analyst and Writer. With Masters in Commerce and Business Studies, Ankita learned much of what she knows about management through experience. She has previously worked in various financial institutions like Birla Global, HDFC Ltd. and Citi Financial. She is self-motivated and writes for the Knowledge Tank section of Project Guru. She has authored more than 80 articles so far in Human Resources Management, Strategic Management, Finance and Marketing. She likes to pen her thoughts about the latest issues gripping these areas across the world.

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