Think You Understand Globalization?

03.26.12

China is Running Out of Cheap Labor

Can a country succeed without mass immigration from poorer nations? By David Frum.

A friend who works at an international financial institution sends this thought:

China might be—probably is—beginning to experience something of a labor shortage. Unskilled peasants are still flooding into the cities, but not in the numbers they once were and, frankly, given the demographics of the country, probably won't again for another half century at least.

So wages are going up, even for mostly unskilled workers. Up by a lot, very quickly.

This is forcing some employers of very low-end labor in businesses with very severe cost pressures to relocate out of high-cost China to other places with bigger surpluses of peasants and other low wage people. The stable ones—Vietnam, Malaysia, Indonesia and India— and even the unstable ones—east Africa, Pakistan, Honduras, El Salvador.

But think about the scale of that problem. A country of more than a billion people that we once thought had an essentially unlimited
supply of ultra cheap workers just doesn't have as many as we thought a decade ago.

My very rough and inexpert, off the top of my head calculation is that all those places with remaining surpluses of ultra low-cost labor have, maybe, 20 or 25 years of supply on hand.

In two decades, a lot could happen. One of them being a global shortage of ultra low-wage workers.

Even at that point, there will still probably be millions of people who want to come to the US and work for relatively low pay doing relatively low-skill jobs. But it is also possible that low-wage workers will be in such low supply that US firms just won't be able to hire any, either here in the US or abroad.

We have to think through what that means for immigration policies.

I'm just back from my fourth trip to Seoul in 18 months. I note that even cab drivers and hotel maids in Korea are Korean. And cabs in Seoul are really, really inexpensive. Gas isn't inexpensive. But cabs are. So it's not like being a cab driver pays better in Korea than it does here. And hotel rooms aren't notably more expensive, so I'm sure hotel maids aren't better paid. But somehow Korean hoteliers find Koreans to clean rooms and taxi cab companies find Koreans to drive cabs.

Makes me wonder, as I think you do, whether you really could run a successful high-income country without mass immigration from pretty poor countries.