China's Jiangsu Province Hikes Minimum Wage In Hopes Of Luring Back Freaked-Out Coastal Workers

China’s recent economic (re-) boom has created a shortage of workers in certain provinces.

What’s going on is that rural workers who came to the urban areas during the big run up went home during the export collapse, and haven’t returned.

Now they’re hesitant to comeback.

So regional governments are hiking minimum wages as a lure to workers, though the catch 22 is that companies with razor-thin margins will have trouble paying up.

RBS: Jiangsu province has reportedly hiked its minimum wage 13% to 960 yuan. The decision is important as the province is China’s second largest exporter. It was also facing the same labour shortages that have affected many coastal provinces.

The shortages might appear odd given that the $- value of exports is only just approaching its pre-crisis peaks, as illustrated by Figure 1. However, the sudden jump in orders has left exporters scrambling to find labour. Employment agencies have reported strengthening coastal demand for labour, but limited interest from migrant workers.

Why? Fiscal stimulus has spurred jobs growth in the interior provinces. However, export factories are also still facing cost pressures and sluggish demand, and are reluctant to hike wages. As one manufacturer earlier said to me, “If I hiked wages 50%, I would find workers. But I can’t afford to”. There are also anecdotal reports that migrant workers are reluctant to rush back to coastal factories since experiencing their first “recession”.

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