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Foxconn workers  (Source: Kotaku)
A growing Chinese economy and a need to tend to manufacturing workers' needs has upped the cost of labor

Years ago, several U.S. manufacturers moved production plants to China in an effort to cut labor costs. However, the age of cheap labor in China is ending as annual wages for manufacturing workers continue to grow, and now, some of the larger plants in China are looking for a new home.

Originally, toys, footwear, and textiles were among the first to go to China decades ago. With 1.3 billion people, cheap labor in China seemed unlimited at the time. But in the last two decades, this began to change as a "frenzied" infrastructure and housing build-out caused a flourishing economy that has grown nearly 12 percent per year. In addition, the Chinese government raised the minimum wage 14 percent to 21 percent this year alone in the five largest manufacturing provinces. 

"We've seen our wage costs in China go up nearly 50 percent in the last two years alone," said Charles Hubbs of Guangzhou Fortunique, which is a medical supply company for some of the United States' largest health care companies. "It's harder to keep workers on now, and it's more expensive to attract new ones. It's gotten to the point where I'm actively looking for alternatives. I think I'll be out of here entirely in a couple of years."

But where will plants go to next? Countries like India, Laos, Cambodia and Vietnam are a few options for cheap labor. Also, some companies like Wham-O, a toy company, are returning to the U.S. Last year, Wham-O moved 50 percent of its Frisbee and Hula Hoop production to the U.S. According to a study by the Boston Consulting Group (BCG), China's average wage rate was 36 percent of the United States' in 2000, and by the end of 2010, this "gap" shrunk to 48 percent. By 2015, BCG predicts it will be 69 percent. 

"So while the discussion in the short term favors China, the spread is getting down to a smaller and smaller number," said Hal Sirkin, leader of the study and senior partner at BCG. "Increasingly, what you're seeing [in corporate boardrooms] is a discussion not necessarily about closing production in China but about 'Where I will locate my next plant?'"

Production in China will not close entirely for most companies because even though labor costs have increased, they're still cheaper than most other places. Right now, the average manufacturing wage in China is about $3.10 an hour, while it is $22.30 in the United States. In the eastern part of China, it is about 50 percent more than the average $3.10 wage elsewhere. 

China sees this new shift as a good thing. After the Foxconn suicides and high-profile labor protests last year, wages were increased. Also, many multinational and Chinese companies have relocated or even expanded inland for cheap labor, meaning that people in Henan or Sichuan can find jobs closer to home and do not have to live in a company dormitory. Manufacturing workers, like 24-year-old Wu Dingli, say they prefer working closer to home, even if it means making a bit less money than jobs further away. 

"Life is much easier for me here because I'm closer to home," said Dingli, who left an electronics factory job in Dongguan for a electric cable supply job in Chongqing. "I much prefer this job to the old one."

In addition to making life easier for employees, rising wages will give more money to the people, which will in turn increase Chinese consumption. This will benefit Beijing's major trading partners, who can then decrease "drastic imbalances" in global trade. 

While exporters like Hubbs will feel the effect of higher wages, the bottom line is that China is becoming wealthier with a stronger currency, and the time of cheap labor is coming to an end.

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RE: Good...
By gamerk2 on 6/20/2011 3:52:01 PM , Rating: 2
Pardon me for saying, but isn't it businesses that at the end of the day agree to a contract with teh Union. If they're willing to pay...

Secondly, high wage jobs is a requirement for a growing economy. High wages increases demand for goods, increasing sales, thus increasing demand for jobs. The rush to lower wages is one of the things killing the US economy, as consumer spending is no longer sufficient to grow us out of hard economic times [as we are currently learning]. Of course, GREAT for coorporate profits though, but not so good for the US.

Whats happening in China is not surprising: Demand for goods [both locally and overseas] is casuing a demand for workers [to make more product and thus more profit]. Their increased spending spurs more demand for goods, and thus to attract more workers, higher wages are offered. Those wages farther increase demand, thus spurring higher wages.

RE: Good...
By weskurtz0081 on 6/20/2011 4:02:21 PM , Rating: 4
Sure, the business agrees to the contract, and then they charge more for the products, in some cases the alternative is a strike.

Point 2- so, what happens when the high wages make the product the company is producing less expensive than that of the competition? Do they just keep producing the product that costs more to sell and just hope people will pay for it? It's not nearly so simple as saying "as long as wages continue to increase, everyone in America will be fine", we are not isolated, we sell products that are made in other countries.

Point 3- and then China will likely have the same problem we have, they will lose manufacturing to other countries because it's more cost effective. See how that works?

RE: Good...
By Motoman on 6/20/2011 8:02:21 PM , Rating: 2
Pardon me for saying, but isn't it businesses that at the end of the day agree to a contract with teh Union. If they're willing to pay...

Red herring. Because of the protection that unions get from the government, once they're in your plant/location, the only way to get them out is to shut the plant/location down.

So, you either acquiesce to the union's demands, or you shut the plant down. Unions have the company over a barrel once they get in...

RE: Good...
By Fost04mach on 6/22/2011 5:54:38 PM , Rating: 2
It is the business that agrees... Because if they don't the employees go on strike, and by law, they are not allowed to fire and replace them. So as a business owner who wants to keep producing, what do you do?

“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls

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