This Week's Herman Trend Alert

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  The Herman Trend Alert

March 7, 2012

Chinese Employers Struggle to Retain Workers

The Law of Supply and Demand is alive and well in China today. China’s supposed never-ending supply of cheap factory workers is drying up. Retention is becoming a serious problem for companies in China. Wages and benefits are increasing. Employers are facing a shortage of labor. Their responses to these issues will have important implications locally and globally.

Peter Cappelli, director of the Center for Human Resources at The Wharton School, recently returned from spending a month in China. He found a labor market in transition. Not surprisingly, factory work in China is not high-status. Companies wanted to find people to work at low wages in their factories located in the East; they recruited people from rural areas of western China, where there were limited work opportunities.

Up to this point, Chinese employers have not treated their employees very well, because they did not have to. There has always been a line of people waiting for work.

About two years ago after the Spring Festival (an unpaid month-long adjustment to workers’ desires to visit home), it started becoming slightly more difficult to retain workers. Apparently, some people did not come back to work after their breaks. In reaction, employers sent representatives to workers’ villages, distributing presents and money to encourage them to come back. In addition, raising wages had no effect on retention, because everybody was doing it.

In the past, when workers did not return to work, employers just hired new ones. Now, companies are finding more and more workers coming back later and later, because they know there will be vacancies. If they do not go back to work for their previous employers, they know there will be other companies more desperate to hire them, after operations have resumed.

Returning employees are now checking all the factories in their areas to see what wages the other companies are offering. Moreover, Chinese companies are also paying hiring bonuses, only they call them "switching fees". Chinese employees are clearly in the driver’s seat.

Our forecast: expect to see a major shift in the way employers treat Chinese workers. These employers will “add value” in ways that will be meaningful to their employees and it will not be just money. Improving living and working conditions, training supervisors and managers, offering career pathing, and even directly supporting families back home are but a few ways we can expect to see employers adding value. The challenge will be to continue to keep prices low as well.###

Special thanks to LRP Publication’s Human Resource Executive Online for publishing Peter Cappelli valuable insights from his recent trip to China.


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