Reports on the potential impact of the shift to a two-child policy in China have tended to highlight the demographic reality that change will be slow in coming, if it ever does, and will have modest impact on China’s peak population and demographic pyramid. A few have speculated that the shift could lead to a boom in demand for baby products.
Having talked with a number of entrepreneurs recently, I believe that there could be a more negative outcome: that young women, especially migrant worker women, may find it harder to get a job in the first place.
Why do I say this?
It may be helpful to remember the incredible pressure that many manufacturers in China find themselves under – weak export markets, declining ex-factory prices, rising input costs, and persistent over capacity in many sectors.
On top of this, government has imposed an ever greater burden of social and welfare costs. Yes, it is possible to be non-compliant, but much less so than before. Not only will local governments in China inspect manufacturers to ensure their compliance with labor standards and regulations, but so will multinational customers, who have seen how using non-compliant suppliers can create a backlash against their own brand.
These costs include 5 months of maternity leave in most parts of China. The potential for the Trans Pacific Partnership (TPP) trade agreement to increase costs for Chinese factories relative to southeast Asian competition (who will see tariffs for export to the US lowered) also weighs on factory owners.
Factories are already reconfiguring themselves for this new reality:
- They are shifting capacity into ASEAN countries, especially Vietnam, Laos and Cambodia to manufacture inside TPP countries and so benefit from lower tariffs to the US (recognizing that TPP still has to be approved in many countries before it can take effect). Surprisingly to me, Indonesia seems less popular as a destination. This shift was already underway; TPP is accelerating it.
- Adding capital into factories to reduce the need for labor. This has been underway since factory wages started to rise so dramatically 7-8 years ago, and is evident today in almost every factory I visit: fewer workers per meter of production line, with significantly higher productivity than only a few years ago.
- Shifting from migrant to locally-based workforces. Migrant workforces may be superficially cheaper but they suffer from much higher turnover not just around Chinese New Year but through the year. A local workforce is more stable, is more able to deal with a short family crisis with a few days rather than weeks off, and is likely to have a higher level of commitment to the company. Today, more women choose not to return as a migrant worker to a coastal factory once they have a child.
- Shifting from younger to older workers. Older workers are also proving more stable, leading to lower recruiting and training costs. They typically will have started a family years older and children are well into school, so while there may be days off to handle sickness, there was (until the new two-child policy was announced) little chance that they would apply for the long maternity break. Even though older workers are less dexterous on the production line, factories are finding that they can achieve the same productivity as before by adapting jigs and fixtures at relatively low cost.
Consequently, I anticipate that HR teams when recruiting for factory workers will attempt to understand the interviewee’s plans for the size of her family. Even if they don’t, they will face implicit pressure to not hire workers in the typical demographic of those who might have a second child.
This might not have been much of an issue in the past few years when jobs were plentiful. However, with the pressures listed above, we could quickly come to a situation where younger women who want a well-paying factory job, will not be able to find one.
Image Credit: Flickr/Ross Pollack
Follow Gordon on Twitter @gordonorr.