Article: The labor pains of the 'Shrinking' Dragon

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The labor pains of the 'Shrinking' Dragon

China’s 35-year old one-child policy which was put to end at the end of October produced a population that is old, ailing and afflicted with gender imbalance, has ultimately started to affect the economics of the country
The labor pains of the 'Shrinking' Dragon
 

After expanding 2.5 percent a year over the past three decades, China’s working-age population has almost stopped growing

 

We’ve all known it. Have condemned the coercive dictatorship on one of the most personal decisions of families and several had anticipated the consequences of such a mandate on the economy and demographic dividend of the country. It’s the one-child policy which was put to an end at the end of October, a policy that is estimated to have prevented over 400 million births.

China – the land of the red dragon is starting to see the red.

A population that is old, ailing and afflicted with gender imbalance, has ultimately started to affect the economics of the country.  Unavailability of cheap labor pool, rising social costs, population imbalance and other economic and social pressures have led China to abolish such a policy.

China’s labor pool is shrinking as experts state that its 1.3 billion population is ageing and that about 440 million will be over the age of 60 years by 2050 according to UN estimates. A Beijing-based research firm GK Dragonomics estimates that there is a fall in the number of new entrants into the workforce and this will further decline by 30 percent in 2020. Corroborating the fact, Thomas Gatley of GK Dragonomics states that those between 15 and 24 are "the cheapest, most mobile and flexible in the Chinese workforce," but their numbers have been declining since 2005. With this, it is likely that the ratio of retirees that is currently at 49 percent to income earners will jump to 69 percent by 2030. “The shift to a society with a dwindling number of employees funding a growing pension bill is most pronounced in China, the world’s biggest growth engine last year. After expanding 2.5 percent a year over the past three decades, China’s working-age population has almost stopped growing”, said Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies in Washington. “That pool will contract almost 1 percent a year by the mid-2020s,” he said.

China’s decision to put an end to such a policy comes from the realization that China’s surplus labor pool is getting exhausted. Geoffrey Crothall, research director at Hong Kong-based China Labor Bulletin mentions that "the number of young people going into the workforce is declining and they are not willing to work 12 hours a day for minimum wages anymore. They're looking for alternative employment or pushing for higher wages through strike action and protests,” raising concerns over rising wages which can have detrimental effect on China’s economy. The most explicit brunt of such a situation has been seen on the manufacturing industry in China as according to US based financial consultancy firm Capital Business Credit's quarterly report "Global Retail Manufacturers and Importers Survey, which states that "40 percent of US importers and manufacturers are thinking of moving their manufacturing bases away from China as cheap and mobile Chinese workforce is seen to be leaving the country.” Most notable example of this is the German sports goods manufacturer Adidas, which closed its last factory in China's eastern Jiangsu province earlier this year and the cause for this was cited as rising wages. Another implication of such a decline in cheap labor is the rise of automation that is increasingly being used as a substitute for reduced labor supply.

But what can China really do in one of the worst economic growth phases and if it has to match up to the growing economic competition? With an economic blueprint that is geared towards innovation and a radical use of technology, the shortage in the supply of young talent seems alarming. 

Although the scrapping of the policy is aimed at optimizing the demographic structure and increase labor supply, it will take decades before it gives a boost to the Chinese workforce. 

Topics: Diversity, Compensation & Benefits

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