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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 EricMartello on 6/20/2011 8:11:47 PM , Rating: 2
I feel a system like this is far more fair than just saying--you're scum, you're useless, but hey! Make my product for me please. With a system such as this, the people working for you feel they have a real value and can clearly see how their contribution influences the overall process and product. If they work harder, their contribution makes a direct impact as more product is made and sold (assuming 100% sellthrough)--but, as you see, they would potentially share in the profits and this is a true motivator.

I don't have a problem with people who want to work at a factory or some other blue collar job...but I do have a problem when these same people expect that job that can literally be filled by just about anyone demanding that they get paid more, either because they worked there for a long time or simply because they feel they deserve more.

Let's say that you start doing a menial job for minimum wage. It doesn't matter if you stayed there for 10 years doing that job because the value of the work you are doing is unlikely to change, and as for supply and demand - a job that can be performed by anyone offers very little in terms of security.

People have the freedom to choose their way of earning a living in the USA and many other countries in the world, for the most part. Performance-based compensation is a good motivator for people whose contributions can have a meaningful effect on a company's bottom line, but it doesn't matter if Joe Bob screws on 10 doors per hour or 12 doors per hour at the Ford factory - there's still a low ceiling as to how much additional effort can improve a one-dimensional job. Even if Joe could work faster and slap on 14 more doors in his 8 hour shift, the entire assembly line would need to speed up for his contribution to have any effect on Ford's production rate.

RE: Good...
By Taft12 on 6/21/2011 11:54:57 AM , Rating: 1
I don't have a problem with people who want to work at a factory or some other blue collar job...

But just earlier in the thread you called them morons, said they had no ambition and that a factory worker needs to have an IQ less than 80.

You certainly think you're a lot better than these people. It sounds to me like you do have a problem with them.

RE: Good...
By EricMartello on 6/22/2011 2:31:48 AM , Rating: 2
But just earlier in the thread you called them morons, said they had no ambition and that a factory worker needs to have an IQ less than 80.

Most people are morons and I'd say your average blue collar peon qualifies as "moron". Now show me where I said I have a problem with them solely based on that fact?

You certainly think you're a lot better than these people. It sounds to me like you do have a problem with them.

I already explained what I have a problem with. Morons being overpaid for unskilled labor due to unions or government mandates...and for the morons taking advantage of that situation, I most certainly have a problem with them.

RE: Good...
By MrBlastman on 6/22/2011 10:21:26 AM , Rating: 2
It seems you know a lot about morons; what does that make you, genius?

RE: Good...
By EricMartello on 6/22/2011 10:43:47 PM , Rating: 2
I've got to wonder...are the people who fixate on my identification of morons rather than the entirety of the post feeling insecure about themselves???

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