An April 3rd article in the New York Times ran with a disturbing headline: “Help Wanted: China Finds Itself with a Labor Shortage.” The article reported a shortfall of some two million workers in the Southern China provinces of Guangdong and Fujian. This shortage amounts to about 10% of the total migrant labor pool in the two provinces, according to the New York Times. Another publication echoed this theme. The Shenzhen Daily recently reported that Guangdong faces a labor gap of more than one million this year, based on a government survey.

These reports blast a hole in one of the bedrock beliefs about outsourcing to China. The assumption is that China’s supply of labor is inexhaustible. Apparently, this is no longer the case in Southern China. As the New York Times article described, some workers have left Southern China for better wages and working conditions in other parts of the country. The Yangtze Delta region, in particular, has emerged as major competition for
migrant workers. This newer mecca for manufacturing, which includes Shanghai, is attracting workers who otherwise might have migrated to Southern China.

Is this shortage affecting the EMS industry in Southern China? As far as MMI can tell, the large US-traded EMS providers have said nothing about a labor shortage creating problems for them in China. If a shortage were to have a material effect on their operations, they are obliged to say so. There is a good reason why this shortage would not have a significant effect on EMS operations in Southern China. EMS providers can afford to pay high enough wages to attract the workers they need. After all, labor content is a small portion of product cost. These providers have an advantage over smaller, laborintensive factories where the pay is less and working conditions are not as good.

Take Nam Tai Electronics. The company met its Q1 target of hiring about 1,000 new employees for its factories in Baoan, Shenzhen, and has not encountered any hiring problem. Nam Tai believes the wages and benefits its offers are quite attractive when compared to those offered by other companies in the area. Since recruiting is not a problem, Nam Tai says there is no pressure to increase labor costs at present.

Still, this labor shortage is affecting wages elsewhere in Southern China. A government survey of 35,000 companies in Guangdong found that 40% of them are considering pay increases this year, according to the Xinhua News Agency. EMS operations such as Nam Tai’s might not need to increase their wages, but pay raises elsewhere in Southern China can potentially ripple through the supply chain of materials sourced in the region.

China is merely showing that it is no different than any other labor market. The torrid growth of manufacturing in China has created such a demand for labor that not only companies, but also regions are competing for workers. Migrant workers, which are the fuel for China’s manufacturing economy, are voting with their feet.