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Manufacturers in Guangdong have complained that they do not have enough workers to stay in business, so does this necessarily mean that labor costs are rising in China?

With the end of the Spring Festival holiday, tens of millions of migrant workers are once again leaving their rural homes to seek jobs in cities. But at the same time, factory owners in coastal areas still fear that they cannot recruit enough workers to fill their vacancies.

This paradoxical phenomenon first appeared just a few years ago and looks set to intensify this year.

While domestic researchers have agreed on the far-reaching significance of the constant fluctuations in the supply of inexpensive rural labor for the Chinese economy, migrant workers still hope for better-paying urban jobs.

In the past year, as many as 60 percent of the employers in Guangdong Province, an economic powerhouse in South China, suffered from labor shortages, according to a recent survey by the local labor department. This marked the third consecutive year that this heavily industrialized province had been caught by a shortfall of migrant workers.

The increasing demand for skilled workers among Chinese enterprises looking to expand their production in recent years explains part of the problem. But experts believe that the more fundamental change has occurred on the supply side.

With a population of 1.3 billion, the world's largest, China enjoys a comparative advantage of cheap labor costs, which have enabled it to rely on labor-intensive growth for more than two decades and rise as a global manufacturing center in recent years.

However, due to the rapid aging of the population, the pace at which country's working-age population grows is destined to slow down, eventually resulting in labor shortages.

"China's supply of labor force will peak soon," said Cai Fang, director of the Institute of Population and Labor Economics under the Chinese Academy of Social Sciences. "The turning point in the growth and the structure of the Chinese population will come much earlier than most people have expected."

"Before the turning point arrives, a structural labor shortage will appear in some regions," Cai added.

Guangdong's processing industry has keenly felt the pinch caused by the shortfall of migrant workers. Local factories already find it hard to employ migrant workers at low salaries despite a contingent of 150 million people who are waiting to migrate from rural to urban areas.

China has a rural population of about 900 million people, among which more than 200 million are engaged in non-agricultural work either in their hometowns or in cities.

Though farmers-turned-migrant workers still cannot hope to earn as much as their urban counterparts, the money they earn accounts for an increasing share of farmers' total income. Statistics from the Ministry of Agriculture show that between 2001 and 2005, migrant workers' aggregate incomes have roughly doubled from 279 billion yuan to 551 billion, while farmers' total incomes only increased by 45 percent.

The government is eager to narrow the widening urban-rural income gap. At present, farmers earn on average only one third of what urban residents make on a per capita basis.

Given the important role farmers-turned-migrant workers play in both facilitating urban development and raising farmers' aggregate income, it is no surprise that the central authorities have attached great importance to the issues that affect migrant workers.

Early last year, the State Council issued a document aimed at protecting migrant laborers' rights. It called for increased efforts to ensure rural laborers in cities earn decent pay and are paid on time.

Despite the emerging shortfall of labor, most migrant workers can only hope to see their wages increase. In some coastal areas, wages for migrant workers were stagnant for a decade before increasing just a little bit very recently.

"One reason why wages for migrant workers remain low is that they are not well organized and are thus in a disadvantageous position when negotiating with employers," Wu Jinglian, an well-known economist at the Development Research Center under the State Council, said during a recent speech.

In the past year, the authorities have focused on putting in place measures and mechanisms to protect migrant workers' interests and rights. Some good has come of them.

For instance, the common practise among factories and construction companies of withholding workers' pay has been a persistent problem in China over the past 10 years, but Beijing reported only 1,965 cases of migrant workers' wages being delayed last year, down 63 percent from the previous year.

With enhanced protection from the government, migrant workers might be able to secure higher wages this year. Yet, in view of the still huge rural population, it seems too early to conclude that a significant rise in labor costs is imminent.

(China Daily 02/28/2007 page4)