China's migrant worker: unlimited labor supply?

To understand how China was able to maintain such a stable and cheap source of labor one has to understand a little about China's demography, geography and society.

There are 1.3bn people in China, about 0.4-0.5bn in urban (depending on definition -- and increasing) and 0.8bn in rural areas according to official statistics. According (and thanks to) David (DOR) the working population is 58% of the population or 752M (not sure how many migrants are included in this number), urban employment is 265M (likely to be based on 'official residence', i.e. not including migrant workers). Recent estimates put the number of migrant workers to around 130M, which means the real urban working population is close to 400M vs about 350M(up to 480M) in the rural! This observation has a few implications:

• The total number of urban working population has already surpassed that in rural
• With improved productivity in rural area, the total number of workers needed is likely to stabilize at certain number (maybe between 300-400M?), since the total area of arable land is unlikely to increase (in fact, more likely to decrease due to further industrialization and improved productivity, worker to hectare ratio in agriculture will also change slowly) and population growth is more or less contained
• In the past 12 years wages have only risen by 1%/year, mainly because there has been virtually unlimited supply of labor from the rural, but...
• Lastly but most importantly, there cannot be an unlimited supply of cheap labor from rural China (according to Dali Yang). The labor cost in China has to rise when the new supply from rural can no longer meet the growth in demand, which is about where we re today. There has already been early reports in Guangdong in 2004 that for the first time since 1980 local factories have difficulties recruiting new workers (see here and here). So the wages have to rise and hence all costs in China, which will be followed by inflation, and maybe currency appreciation as well?

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p.s. When I was making business trips in China, I often took some time to learn about the lives of the people there. In the beginning I talked to taxi drivers, as a way to kill time during traffic, and also to understand their lives, hence the market I was trying to study (I started as a strategy consultant, with clients from different industries). Later, I began to talk to other staff I met in the hotel and various establishments such as restaurants. I found these conversations very educational, both to me as a person and also in understanding the business implications. I was also able to form my own longitudinal studies of the lives of the lower middle class in China during the past 10 years.

As it turned out, many of these people I talked to are the so-called "migrant workers", which generally referred to people who came from the less developed (mostly rural) areas to cities to find jobs. The more I got to know them, the more I sympathize with their situation. They have no insurance or benefit, working 70-80 hours a week, no proper holiday, no job security and are discriminated by city residents (e.g., a typical phrase for mismatching is "migrant worker marrying colleague graduate girl"(大学生嫁了民工), synonymous to the derogatory "toad eating swan meat"(癞哈蟆吃天鹅肉)). Technically it was illegal for them to stay in the cities and they were often persecuted by the police before the Sun Zhigang incidence during the SARS period in 2003, in which a college graduate from rural Hubei was beaten to death by police in Guangzhou. Only after that incidence has been widely reported in the media (including the internet) the the "Custody and Repatriation" rule were formally abolished and migrant workers were officially permitted to live and work in the cities.

If you want to know more about the lives of these migrant workers, Wall Street Journal has run two very good articles about the life of the migrant workers. An abstract can be found here.