However, the population bonus is gradually disappearing. This change is expected to boost urban and rural laborers' wages.
The transition from unlimited supply to shortage is termed as the "Lewis turning point" in economics. The precondition for this turning point to happen is the extensive existence of a dual economy. As there is a large agricultural population, the rural labor force keeps transferring into non-agricultural sectors in urban areas and the price of the labor force remains relatively low. When non-agricultural sectors have absorbed all the surplus agricultural population, the dual economic structure will gradually develop into a unitary one and a balanced modern economy. Thus, economic growth is the fundamental cause of the arrival of the Lewis turning point.
Since 2004, some provinces in China's southeastern areas have seen a shortage in terms of migrant workers. This situation is spreading from the eastern coastal provinces to central China and even to provinces that previously supplied large quantities of laborers. As a result, the wages for common laborers have risen. For example, in China's economically developed Pearl River Delta area, in 10 years to 2004, migrant workers' wages only rose by 60 yuan, while in the one year from 2004 to 2005 it rose by 100 yuan. At the same time, the trend of rising urban unemployment rates is reversed. The abovementioned phenomena signal changes to the labor market and show that the labor supply, especially that of untrained laborers, is reaching a balance-no longer more supply than demand. In some areas, supply has even fallen short of demand and in the future an overall labor shortage may occur.
On one hand, the changes taking place in labor force supply and demand, and especially the premature arrival of the Lewis turning point, will shift the current status of employers and employees in negotiations and also change their respective influence on the government's legislation and decision-making. In order to beat rivals in the market, businesses need a high-quality workforce. For this purpose, they have to improve the working environment and increase wages. In addition, workers will have more freedom in making choices and the current unequal relationship between employers and employees will be changed. In the past, migrant workers were always blamed for the heavy unemployment pressure in urban areas and discriminative policies against migrant workers were common. The Lewis turning point will make it easier for urban residents to find jobs.
On the other hand, the Lewis turning point poses a challenge to China's economic growth model that depends on the large quantity and low cost of the labor force. Once the unlimited supply of labor comes to an end, China's economy will enter unfamiliar territory. Therefore, how businesses and particularly the government cope with the challenges posed by the Lewis turning point will, to some extent, decide the future of the Chinese economy.
As far as businesses are concerned, whether they depend on the increase of labor or input, or on growing productivity, it largely hangs on the price of production factors. When the labor price is low, businesses will naturally choose labor-intensive industries; when there is a sufficient capital supply, businesses will try to secure more investments; when the former two resources are relatively limited, businesses will look at enhancing productivity. However, whether businesses can receive correct market signals depends on a well-developed market. Only competition can really reflect the value of production factors in the market.
All in all, in face of the arrival of the Lewis turning point and the declining population bonus, China should find a more suitable mode of economic development, more dependent on technological innovation, intellectual property rights protection, and productivity improvement for economic growth, rather than focusing on cheap labor, cheap production factors and cheap resources. |