Growing pains of labor market
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Before 2004 when labor supply exceeded the nation's requirements, migrant workers had no status and had to endure intolerable treatment or risk being replaced. After the Lewis turning point was reached, the supply of labor became more elastic, that is to say, migrant workers had the freedom to say no to employers.
The poor adaptability of some enterprises to the new labor market means they are unable to cope with labor problems. Employers should update their understanding of the market and their workforce and cooperate with governments to promote the institutional maturity of the Chinese labor market.
The labor costs of manufacturing in China grew an average 9.8 percent annually from 2000 to 2007. The marginal labor productivity increased by an annual average of 20.4 percent and the average annual labor productivity rose by 22.8 percent during the same period.
Perfecting the labor market mechanism simply suggests increased productivity means increased pay. It is an unavoidable "growing pain" for employers of all emerging economies. Japan went through this process in the 1960s and South Korea in the 1970s.
Japan streamlined its primary national wealth distribution after it reached its Lewis turning point around 1960 through collective wage negotiations and gradually increasing its consumption rate. South Korea on the other hand maintained strict controls over domestic unions after its turning point around 1970. As a result, it took the country more than 17 years, with awful political and social costs, to build up their learning curve, granting the payments the labor forces deserved.
Only when every party involved agrees that labor payments should account for a bigger part of the primary distribution of national wealth can we move on to build a collective negotiation system and strengthen the role of the unions. This is the right order to eliminate income disparity, improve company performance and cultivate a healthy mentality among the labor force. It is a win-win situation for all instead of a zero-sum game.
History indicates that it is a golden opportunity for the Chinese government to lay the foundations for a rational labor market. Doing so will not only help upgrade the nation's industries, it will also contribute to releasing social pressures effectively.
The author is director of the Institute of Population and Labor Economics with Chinese Academy of Social Sciences. The Chinese version of this article can be found in the latest China Economic Observer magazine.
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