When a Billion Isn’t Enough: China Faces a Labor Shortage

Story by Ben Wolford

One Friday morning, James Gan ate two pieces of steamed bread and took the Shanghai Metro to work. The ride from the Zhabei District to his office in Changning is one hour. He used that hour to rehearse the speech he would give to his boss. Gan was sad, and he was nervous. He was leaving his company.

Gan, 33, is a mechanical engineer who designs audio speakers for cell phones. And he’s good at it. His division worked on cutting-edge innovations, like putting the speakers and the antenna into the same tiny box to save space. Gan worked on jobs for Apple and for HTC. In fact, his receiver is in one of the iPhones. (Apple is secretive; he declined to say which one.)

“Indeed, few people can replace me,” Gan tells me one evening in limited English.

He’s right. He’s in demand.

People pass through Shanghai's People's Square subway station, the largest subway station in the city, during midday. Photo by: Gary Hanson

People pass through Shanghai's People's Square subway station, the largest subway station in the city, at midday.

A fifth of the people in the world are Chinese, and supplies for a lot of things here are strained. One official, quoted in the government-owned newspaper China Daily, predicted a major food shortage by 2030. Natural gas supplies are falling short. So is rubber. Recently another supply shortage has emerged. This country of 1.33 billion people needs more people.

In China last year, 12.9 million fewer people came of working age than a decade ago, according to a national census. And more are retiring, too. Over the same time period, 21.6 million more people retired from the work force. In the United States that’s like the labor force of Maryland and Michigan disappearing and retiring, all at once.

Experts blame, among other things, the one-child policy. For 30 years, the government restricted the number of children couples could have based on certain criteria. Now, some say, the country is at a turning point. They’re trying to educate and manipulate the movements of the massive migrant workforce. And they’re rethinking long-standing policies. “There are so many people moving from the rural areas to the city,” said Professor Hanlong Lu, of the Shanghai Academy of Social Sciences. “But few of them have the proper skills or technical training.”

That’s what makes Gan valuable. He has years of experience, including work for Apple, one of the most visible worldwide brands. In January, a global speaker-making company, Harman, singled him out, and one of their executives in the United States flew to Shanghai to meet him. In March, they offered him twice his salary. The next day he mulled over ways to tell his boss he was quitting during his Metro ride to work. It would be a sad valediction. He’d grown close to his team. “It’s really difficult to leave my present company,” he decided he would say. “All my partners and my colleagues and my boss are very good men. They helped me with a lot of things for four years.”

A lot can happen in four years, especially in China where skylines are raised in two decades and whole cities stand empty, built too fast and too expensive for people to move in. Of the world’s major economies, China’s is growing fastest. But gross domestic products are driven by people, who innovate and build. Human capital is essential.

And, for now, human capital here is tight. China’s migrant worker population tops 225 million, according to the National Bureau of Statistics. They might be enough to reconcile the work deficit. But they lack skilled trades, and governmental policies discriminate against them. Sure, they can perform basic labor, like pouring concrete. But 140 million migrants live on the east coast and in megacities, where the pace of building is slowing — far from burgeoning inland cities where pouring concrete is most needed. The government knows the problem, and it has been trying to correct failing policies and fill the labor gap. Things are changing. Slowly.

Workforce shrinking, wages rising

The Hongkou Branch of the Shanghai Employment Service Center has a half-dozen floors. Most of them are occupied by uniformed staff, slumping over computers, answering a phone. The sleeping security guard at the entrance doesn’t lift his cap off his eyes when I walk through the door.

The second floor, an open lobby with computer stations and counters, bustles with dozens of job seekers shuffling around. Some stand in lines waiting to be interviewed for a job at a steel factory. One middle-aged man leans against a counter filling out an application form. A scrolling board on the wall displays job postings: For $300 a month you could sell electronics at a popular big-box retailer. Construction workers and restaurant servers make about the same.

Those wages represent an enticing upward trend. China Daily reported workers earned 8.4 percent more in major industries in 2010, and local minimum wage rose 23 percent. Salaries are expected to continue rising this year. It’s all related to a labor gap that has been brewing for years but that’s grown painful since February, according to a March study from the National University of Singapore.

A work shortage in China is difficult to fathom. At 780 million, it has more workers than any other country by far. The next closest, India, has 473 million.

Shanghai workmen heading out on a Sunday morning. Photo by Gary Hanson

Shanghai workmen heading out on a Sunday morning.

The shortage is also difficult to quantify. China’s government reveals few numbers, and domestic media, much of which is state-owned, frequently leave data unreported. The head of the Honkou employment center, Wang Xing, deflected questions about the size of Shanghai’s available workforce, saying exact figures are muddled because some people go to their website and some come to the office. One government survey of Shanghai businesses in 2010 estimated 150,000 jobs needed filled. The New York Times reported in April that China’s exporting industry needs 1 million workers or more. The southern Guangdong Province, just north of Hong Kong, is shy 1 million workers as well, China Business News reported in February. And the shortage is growing. “It is a structural problem which mainly affected the labor-intensive manufacturing and service industries in eastern coastal areas,” Yin Weimin, the Chinese minister of human resources and social security, told reporters in March. “Now it seems to be spreading to central and western China.”

Wang is a neat man with a blue suit and a small People’s Republic of China flag on his lapel. His branch of the Shanghai Employment Service Center covers one of Shanghai’s 18 administrative subdivisions, the Honkou District. It’s just northeast of downtown Shanghai, and its nine square miles are home to 784,000 people. That’s the population of Columbus, Ohio, living in space smaller than three Ohio State University campuses. Honkou’s economy is flaring up like the rest of the city and the country. In four years, the volume of foreign trade quadrupled in Honkou to nearly $1 billion.

“Shanghai lacks talented workers because all the industries are developing so fast,” Wang says. Shanghai needs talent in mechanical engineering and auto mechanics, sales and software. It even needs restaurant servers; there are help wanted signs in nearly every window. “The situation is there are a lot of open posts, but there are also a lot of people who don’t have jobs,” he says. “There are two reasons: The first is the enterprises are developing very, very fast, and they have higher and higher skill requirements. And the second is people can’t catch up.”

Feng Chen, a vocational school student, has come to the Hongkou employment center with a group of other students on a charge from his teacher to practice applying for a job. His school is in Xi’an, the capital city of the Shaanxi Province, 1,000 miles west of Shanghai. They study industrial engineering. “We only want to know something about jobs here,” he says in English. “Maybe there are many opportunities, but they are not suitable for us.”

Feng can be that confident. Jobs are plentiful. Workers are not. He knows a trade. He knows English. He can take his pick.

The Shanghai Employment Service Center exists to help him find suitable work. But more importantly, it’s there to help employers find suitable workers. It’s free for potential employees to walk in and find information. During the Spring Festival this year, when hordes of Chinese return to their rural homes, a large LED sign was waiting for them in the train station when they returned to Shanghai. It said, “People from all over the country are welcome to participate in the construction of Shanghai.” It pointed them toward employment service centers.

The government wants to draw them. But if you didn’t know better, you’d think the government wanted to push them out.

What to do with migrants?

The Chinese Academy of Social Sciences, with central offices in Beijing, conducts big-picture economic research. The government uses it for policy development. Journalists use it for articles like this one. I met Zhou Haiwang, the deputy director of their Institute of Population and Development Studies, at the Academy’s Shanghai branch.

He comes to our meeting with a stack of papers, full of statistics from his research, and paints for me a portrait of China’s labor situation: China’s economy is growing, and the pool of workers is shrinking. Then I ask him if he were in charge, how would he fix it? His answer covers a dozen points. They all relate to migrants, the enormous population of workers from the countryside. “There are many differences in treatment between the citizens and the migrant workers,” Zhou says through my interpreter. “The government is trying to improve this situation, but it’s a legacy from a long time ago, and it’s changing slowly. The situation now is not that good.”

Thirty years ago, Shanghai’s economy exploded. That’s when it built the Pudong skyline with its remarkable Oriental Pearl Tower and the World Financial Center. Poor migrants flocked. They built the city, and they stayed. Nine million people in Shanghai are migrants. They’re not citizens, and non-citizens are treated differently — treated worse — here.

The treatment — some call it discrimination — is institutionalized. It goes back centuries. The Han dynasty, nearly 2,000 years ago, taxed the poor inordinately. They revolted, and there was civil war. That ancient instance of institutional class distinction was the precursor to what’s called the hukou system. The government under Mao Zedong revived the policy in the 1950s. Then, unlike now, China’s cities had too many workers, and one leader in the Communist Party of China, Rao Shushi, had an idea to solve the urban unemployment: kick people out of the cities.

Thus, the modern principles of the hukou system were established. At birth Chinese are assigned a hukou, a residence permit granting municipal citizenship. It divides the population into groups: rural and urban. Urban citizenship means government support in the form of insurance, retirement benefits and subsidies. Rural citizenship means you’re on your own.

In cities crunched for workers, Zhou argues, the government isn’t making a strong case to help them stay. Sixty percent of people living in Shanghai born after 1980 are not Shanghai citizens, according to a survey by the Shanghai Public Security Bureau. (A source told me I could not publish it because it is confidential. Such a figure would alarm the residents of a city where the popular sentiment goes: Twenty-three million people is crowded enough without migrants taking up space.)

As non-Shanghai citizens, migrants are at a disadvantage. They aren’t entitled to public health insurance that citizens receive, and they can’t get housing subsidies that citizens can. A study by the Academy quantifies the discrimination: Twenty-nine percent of migrants aren’t always paid on time. Ninety-four percent of citizens are. Migrants work nine hours a day, 23 days a month and often on holidays. Citizens work less. Twenty-five percent fewer migrants than citizens work under terms specified by a contract. In one telling portion of the study, Shanghai migrants were asked whether they’re dissatisfied with their quality of life. Of the ones who were, 60 percent said the hukou policy had something to do with it. Another 17 percent didn’t blame their dissatisfaction on anything; they responded, “I deserve it.”

When it comes to solving a workforce crisis, the migrant-citizen disparity that hurts the most is in education. Children of migrant workers are eligible to receive free education through nine grades like everyone else, “but,” Zhou says, “the condition of these schools is not that good.” (I ask him if I could visit one; he says he might be able to arrange it, but he never did. Chinese rarely say “no.”) “Maybe next year or in the future, maybe an even bigger segment of the youth will not be Shanghainese,” he says. “If the policies toward migrants do not change, it will limit these non-Shanghai youth to get educated and find a job. It will impede the development of Shanghai.”

Zhou Haiwang is a researcher at the Shanghai Academy of Social Sciences. He says the work shortage can be fixed if the government can educate its people. Photo by Ben Wolford

Then Zhou doubles back. On the other hand, he says, booming western cities like Wuhan and Chengdu are seeing major economic upswings. Those cities need infrastructure — things like high-rise apartments and bridges — and recently the government has encouraged migrants to stay in their home provinces to help build growing inland cities. It’s a national shortage. Everywhere in China, there’s work to be done.

Including for Zhou. He’s a busy man, and I’ve taken more than an hour. He bundles his papers and dashes out the room. A secretary comes to collect my interpreter, Julie, and me. As we leave the Shanghai Academy of Social Sciences, the secretary stops Julie in the hallway. She says the Academy needs bright, young English speakers and would she like a job?

No need for neurosurgeons

When James Gan, the cell phone receiver designer, was entering Tongji University (renowned across China for its mechanical engineering program), he had big ideas. “At that time my dream was to design a very complex machine,” he says. “A machine with a lot of functions.” He wanted to make a microwave that was also a dishwasher that was also a refrigerator — the Swiss Army knife of kitchen appliances. He’s not working on that anymore.

But his big ideas took him to Shanghai’s top university for engineering. He graduated with his degree in 2001 and went to work with a government-owned company. He did rote work, designing apparatus for spinning cotton into thread. It was dull. But he came away with an appreciation for the importance of materials in an otherwise abstract process of design. So when he left, he landed a job with another government-owned company that researched materials on government contracts. Gan studied various metal powders, exploring applications for them, enhancing their performance.

By 2009 he was employed by Pulse, a Pennsylvania-based electronics firm, where he worked jobs for Apple and Nokia. The cell phone companies supplied him with a list of specifications. Gan and his team designed the receivers and the speakers according to those targets. He struggled with his decision to leave that job. When I met him, he’d made up his mind. He decided to leave in favor of Harman, a company that produces home and automobile speakers.

Gan’s top-notch education is not unusual because more Chinese are going to college. UNESCO statistics from 2008 showed a quarter of the university-aged population were enrolled at universities. In 1999, only 7 percent were. A non-scientific explanation is that parents restricted to one child have a strong urge to dote. Research validates the phenomenon, if not the theory about only-child doting. A study in the July 2009 Review of Economic Studies was partly interested in what effects the one-child policy had on educational attainment. Compared to twins, single children went further and performed better in school. Parents want a child to graduate from the top university. They want a microbiologist or a neurosurgeon.

Unfortunately, the market doesn’t. The market needs a skilled welder or a precision machinist. It needs somebody to draw a schematic for an air conditioner.

Since 1980, the National Population and Family Planning Commission has enforced the one-child policy, and it was set to last 30 years, long enough to subside overpopulation and worries about food scarcity. In September, it will have been 30 years. The Commission now employs 500,000 people. China’s population is aging. Its workforce is shrinking. And the sex balance of China tips toward males, with reports, like one from Mara Hvistendahl in Science magazine, of women aborting when they see a daughter in the ultrasound.

Enforcement of the one-child policy is spotty. It relies on fines and provincial-level policing. There are also 22 exceptions to the rule, according to Science. Still, the policy worked. Maybe too well.

It could be up to Wang Xiang Xong to rescue the country from a prolonged labor crisis that threatens to slow the pace of China’s growth.

Drawing schematics is her specialty.

According to labor experts, learning a trade — a coveted skill set, somewhere between asphalt shoveling and brain surgery — is the solution to the shortage. People like Wang are invaluable. She’s a teacher at a government-owned vocational school near downtown Shanghai and trains students to make schematics for electronics. She says the students who come through the door used to be mostly Shanghai residents, but now half of them are migrants. It also used to be that the migrants who did attend classes were enrolled in the low-level training courses. That’s also risen to half. In general, statistics show, conditions for migrants and their education levels have been improving.

Many of the jobs China needs filled require skills like drawing schematics for electrical appliances. This one is on a chalk board in a vocational school near downtown Shanghai. Photo by Ben Wolford

The school is a warehouse with a high ceiling and classrooms built around the perimeter. The open space in the center looks like a factory floor, except that it has too much of the same equipment in neat rows. They’re workstations to practice welding and building electrical circuitry. Wang says 1,500 students pass through this school every year. Another school just like it downtown teaches 3,000. “The government, in order to attract skilled workers, has put a lot of money into vocational training,” says Lu Ke Min, the director of the school. Tuition is heavily subsidized.

There are big incentives to attending such a government-owned vocational school. For one, “the job market is always burning for this kind of work,” Lu says. Job placement is all but guaranteed. And there’s an even greater incentive for migrants. “If the migrant worker comes here to get trained,” Lu says, “and they work in Shanghai for seven years, they can get permanent residence.” They would be treated by the government as citizens.

‘I have two news’

I hadn’t seen Gan in a couple days.

When I saw him again, I was on a charter bus, preparing to embark on a weekend tour of the countryside. Gan was going, too. He finally boards the bus, and his broad, angular face is grinning from ear to ear. “I have two news,” he says. “One good news and one bad news. You would like to hear what?” Intrigued with notepad ready, I ask for the bad.

“The bad news is, I was laid off,” he says.

Laid off. In a labor shortage, Gan was laid off. Unbelievable. “I thought you said you were irreplaceable,” I reply. It turns out the layoff wasn’t because his company was cutting back; rather, Pulse’s executives decided to go a different direction with its speaker and receiver operations. Gan’s team was disbanded — to his despair; they were good friends and long-time colleagues — and they were left to find other work.

Gan didn’t have to search. The day he was laid off was the day he agonized about quitting on the Metro to work. He’d already accepted the new job at Harman. Gan was hired before he even lost his job.

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Category: World of Work