March 29, 2015
Written by Eins Yu

How Much does China’s Labor Cost, Is It still Cheap?

Thanks to the increasing wages, China has to say good bye to its cheap labor times, compared with its neighboring countries. A bunch of reasons keep inflating worker’s wages . Migrant workers, as the major part of China’s labor, have experienced a profound change since China’s Reform and Opening up to outside in 1978.

Migrant worker’s monthly wage from 2001 to 2011

Unit: RMB

What’s the feature of the migrant workers’ wage spike?

2004 marked the sharp rise of the wage due to the “Labor Shortage” in the Pearl River Delta region in 2004. According  to the chart above, the monthly wage in 2011(RMB 2049, $330 )  doubled that in 2005(RMB 875, $141).

The average wage of migrant workers in West and Mid China is growing faster than that of in East China, which narrowing the  workers’ income gap among regions. In 2011, it is estimated that the average wage of migrant workers in West China reached RMB 1990($ 320), Mid China RMB 2006($ 322) and East China RMB 2053($ 330).

What’s the reason behind the wage rise of migrant workers?

The surplus labor in rural areas has dramatically dropped because of the shrinking of population in those areas. The decreasing supply of migrant workers will lead to a tight market, thus the employers pay more money to retain them.

 Recent years have witnessed a growing education level of  people in rural areas. There is a so-called “new generation of migrant workers” who obtain higher education than their parents and are less likely to choose labor-intensive jobs which also results in the decline of labor force.

From the perspective of policy, China’s government is raising the minimum wage with a projected increase of 13% in five years.

What’s the impact of the labor cost rising?

The inflated wage of migrant workers not only pushes up the labor cost, especially in the labor-intensive industry, but also makes a dent on the services and manufacturing industries.  As a result, China will no longer hold a firm position as “workshop” in the near future.

Fortunately, it is a good chance for China to move to high-value manufacturing and become an fat consumer market.

In a nutshell, though China’s labor cost is increasing, it still has its competitiveness compared with western and American countries. What’s more, the labor quality is also enhanced.