Higher Base Pay Not a Salve For Labor Shortage
A rise in minimum wage rates isn’t likely to reduce the gap in workers’ wages and is not an important issue in China’s export manufacturing sector. However, other factors could be.
The ongoing shortage of workers in China’s manufacturing provinces in the east has forced the local government and suppliers alike to adopt a variety of measures to fill the vacant posts. One of the most popular strategies is the need to increase the basic monthly salary across the major hubs for exports along the coast to lure people from the provinces of the interior. The move, however, might not be enough to address the shortage because a tight labor market has already increased wage rates.
Numerous factories have offered the highest wages for their employees regardless of their skill level or whether they are beginning-level. In some firms, salary levels are higher than the new base rates when the pay increase takes into effect. For example, the minimum wage for some furniture makers in Dongguan, Guangdong province is between 1,300 and 1,000 yuan ($146 up to $190). The projected rise in the base pay to the entire city will be approximately 920 yuan ($135). In certain sectors, the monthly salary can surpass 1,500 Yuan ($219).
However, many factories are still short of hands. This is despite the offer of free lodging and board in addition to the basic salary of 1,500 Yuan. The price of living in coastal cities has left migrant workers reluctant to take jobs in the area. In many instances, employees allocate 80 to 90% of their earnings for food, rent, and other necessities of life. Highly skilled workers at factories producing textiles and clothing in regions like the Pearl as well as the Yangtze River Delta regions generally receive between 1,800 and 2,200 dollars ($260 up to $300) each month, including overtime pay and various other types of compensation. At home, they could make as much as 1500 Yuan ($220) however, they spend around 20 percent less on living expenses.
Increased labor costs can increase export prices in the coming months but not significantly. The rising cost of raw materials is more of a concern. Furthermore, there is speculation that the yuan may increase in value by 2H of 2010 and that export rebates will be reduced. In contrast to the rising costs of cost of labor and raw materials and the impact of a stronger currency as well as the lower VAT refund are much more immediate and difficult to take in.
In the majority of cases manufacturers in the consumer product export sectors like automobile parts, clothing, sports, and leisure, textiles tools, lighting along with general tools will be limited up price increases by a maximum of 5 percent. Many are even planning to maintain their prices steady until June. The same is true for a lot of finished electronic and components firms.
Perhaps the most significant price increase could come from toy makers and some will likely increase quotes by 15 percent. This is more in line with efforts to ensure the safety and effectiveness of products and to minimize recalls, rather than increasing costs.
Makers absorb extra costs, but a caveat
The minimal impact of increases in the minimum wage on the cost of exports and, when combined with other factors that impact the total cost and is largely due to businesses’ desire to cutting profits rather than the risk of losing clients who are price sensitive. A lot of them are able to do this as there’s plenty of space to cut costs.
Many manufacturers are also adopting various cost-cutting strategies to be able to absorb the added costs. This includes reducing waste and improving efficiency in management.
There are a lot of small businesses across the nation which do not adhere to the labor law, including requirements on minimum wages. Due to the effects of higher material and labor costs, a higher currency, and lower rebates increase the cost of production, these companies will likely reduce costs in order to stay affordable.
A number of candlemakers in Zhejiang province have stated that they would increase export prices in the event that the price of paraffin increases by 10 percent. A few of the smaller factories, however, are capable of keeping quotes steady since they’re using cheaper alternatives.
Paraffin wax can cost anywhere between 9,000 and 10,000 Yuan ($1,300 up to $1500) for a ton. Palm wax costs 77,000-8,000 dollars ($1,000 up to $1200). Candles are usually made with an 80:20 mix of palm wax and paraffin. To save money some of the smaller factories make use of less paraffin in the mix, typically resulting in the ratio of 60:40. The versions that burn more quickly melt faster when heated to extreme temperatures.
These suppliers can be able to do this because they know that many customers do not want every candle inspected. With many manufacturers releasing over 150 new designs per year, testing each of them is expensive.
Extended lead times, orders denied
Many companies are of the opinion that the situation with regards to labor will improve in April. At that point, they hope that a lot of the migrants will have returned to their previous work in the eastern region or found work elsewhere.
Meanwhile, production suffers due to the shortage of workers. Many businesses, including smaller ones, are investing in automated machinery to keep up production even with the shortfall. However, this is not practical for all manufacturing industries that export such as the furniture industry for outdoor use. Automation, for instance, is not an appropriate alternative to weaving plastic strips by hand.
Furniture manufacturer for patios Ningbo Top Green Enterprises Co. Ltd has increased the monthly salary by 10 to 20 percent in these past months. But it’s nevertheless in need of employees this is prevalent among industry manufacturers in Zhejiang. Due to the lack of employees to finish orders on time and on time, lead times are increased by 2 to 4 weeks.
Shenzhen Baobolong Technology Co. Ltd follows the same approach. The company that makes toys for children has informed customers that the delivery date will be delayed by a couple of days. They have also canceled certain orders because due to the shortage of workers.
Fuzhou Oceanal Star Bags Co. Ltd is now focused on large-scale transactions and will no longer take smaller amounts. Today, only half the job openings are filled.
The MOQ is also growing. For the PVC key rings business, For instance, the suppliers could accommodate at least three thousand pieces for a custom design. Certain manufacturers would also allow trials for as little as 500 units. Some firms are refusing orders for 5,000 or more pieces.
The minimum wage increases 10 % to 20 percent
The provincial and city government officials announced a series of pay increases just a few days prior to this Chinese New Year holiday. The increases are based on adjustments of between 10 to 20 percent.
Jiangsu province is the very first province to go all-in, raising the highest minimum wage of 13 percent to the equivalent of 960 dollars ($140) in February. 1.
Shanghai along with Beijing are likely to follow suit in the coming days, with a 15 or 10 percent increase that will start beginning on April 1.
Monthly wages in Guangdong are set to be increased by around 20% to 1,030 Yuan ($150) beginning on May 1.
Zhejiang along with Sichuan provinces are considering increasing minimum wage rates as well.
The base pay is typically modified every couple of years. But the economic downturn caused the Chinese Ministry of Human Resources and Social Security to put a stop to the increase in wages in order to ease the burden of cost on manufacturing. Prior to the time that Jiangsu raised the minimum monthly wages in Province, the base pay across the nation ranged between 580 yuan and 1,000 dollars ($85 up to $146).
In the beginning, the factories were already offering higher salaries to their employees. According to the sector that was being worked in, workers who were performing manual assembly were paid between 800 and 1,000 Yuan ($117 or $146) as opposed to workers in the packaging lines receiving between 900 and 1,100 yuan ($132 or $161). Technical staff salaries ranged between 1,200 and 1,500 Yuan ($176 or $219) and production line supervisors between 1,300 and 1,600 Yuan ($190 up to $234) as well as SMT operators at minimum at least 2,000 Yuan ($293).
