China: Shrinking Workforce puts Pressure on Chinese Workers to be Highly Productive

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China’s population is aging rapidly, resulting in an annual decline in the size of its workforce; this is increasing the nation’s dependency ratio significantly. The United Nations estimates that the age dependency ratio could be as high as 44% by 2050 placing even more pressure on the workforce to support those aged 65 years or older. The number of workers in China’s workforce at the end of 2016 sank to 907.47 million. This is a decrease of nearly three and a half million individuals; down from 910.96 million at the end of 2015. The portion of the population aged over 65 years old is predicted to balloon over the next few decades.

Fears that China’s dependency ratio would overcome the nation’s ability to support its graying population prompted a two-child policy to be enacted in 2016 after the long standing one-child policy was scraped. The new two-child policy added 1.3 million new infants to the Chinese population however 17.86 million newborns last year was a much smaller number of births than the number anticipated by the government. Despite the new two-child policy, China is still faced with the prediction of a ‘chronic’ fall in births starting in 2018.

This pressure on the workforce is causing some workers to feel they are expected to put in additional unpaid work and hours on the job despite a lack of compensation and non-compliance with employer regulations. The schedule affectionately referred to as the ‘996 Schedule’ by Chinese workers is the unspoken expectation that employees will work from 9am to 9pm, six days a week. It recently made headlines bringing to light the pressure and stress being placed on Chinese workers across many employment sectors but specifically in technology related companies. These reports included both large corporations and small startup businesses alike.

China’s government is aware of these common practices and has increased the penalties on companies who disregard China’s labor regulations. Employers that violate China's labor protections have been targeted by a pair of measures that took effect January 1, 2017. One of the measures calls for the worst offenders to be “named and shamed,” while the other for compliance grades to be assigned to every company. China hopes to shed public light on domestic and foreign firms across all industries that skirt the country's labor law on wages and hours, paying into the social welfare system and other provisions.

Increased labor shortages are also affecting employers in the market by raising salaries. This is forcing manufacturers to relocate to other markets in Southeast Asia due to the inability of Chinese factories to recruit new workers. This drop in availability can be attributed to more young people opting to complete higher levels of education and seek jobs in the service sectors instead. Only 8% of China’s workforce is considered ‘Low Skilled’ while 80% are classified as ‘Medium Skilled’ based on the ManpowerGroup Solutions Q1 2017 Quarterly Market Report.

Almost half of those workers entering the job market today in China have a college degree. However, China is still facing skills shortages as the skills these workers are equipped with are a mismatch to those needed in the job market. Job sectors for which skills demands will rise in the coming years include healthcare, entertainment, transportation and business services. Vocational training and practical skills are lacking in the youth and young workforce and are resulting is a lopsided workforce, unable to fill the positions that are open and desperately seeking talent.

While China attempts to transition from an economy based on manufacturing of low-value goods to one based on service industries (that also manufactures high value goods) the cost of low-value goods has risen. Demand for these low value goods has fallen and employers are having difficulty attracting low-skilled manufacturing workers. While the country is expected to cut positions in coal and steel these workers cannot be easily transitioned into the manufacturing sector due to lack of skills needed for the open positions in these factories. This deficit will likely hinder China’s transition from a manufacturing based economy to an economy driven by service and consumption related vocations.

A transition to a more services-heavy economy is by no means guaranteed however college students are training for positions in service industries under the assumption that the jobs will be there when they graduate. This was certainly not the case in 2013, when many college graduates struggled to find work in their desired fields. The Second-Quarter ManpowerGroup Employment Outlook Survey results show a high anticipation of hiring activity in the mining, oil and gas and construction sectors; while most students are expected to continue to seek training college degrees in technology and other service industries.

China’s value proposition as a market for contingent labor engagements is shifting. This trend is due in part to an increase in regulations on employers, an over worked and shrinking workforce, higher taxes and increased penalties for employers that ignore regulations. Markets in the region that are gaining favor for new contingent workforce engagements include Vietnam (a growing tech hub) and the Philippines. The Philippines being one of the world’s largest and most cost effective labor pools with a high percentage of low skilled workers.

Though no market other than India can compare to China from a workforce size perspective, many countries in the region are now considered more competitive based on labor costs, foreign business regulations, targeted skills, and workforce sustainability.