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OM in the News: China Begins to Lose Jobs

July 27, 2016
Some assembly line jobs are reshoring or moving to cheaper countries

Some assembly line jobs are reshoring or moving to cheaper countries

Between 1999 and 2011, the U.S. lost 2 million jobs because of a surge in Chinese imports. With its large pool of workers who earned much lower wages than their U.S. counterparts, China attracted manufacturers seeking to reduce costs, bolster profitability and keep prices low. But “China’s labor market has changed sharply in recent years. China is moving up the value chain,” reports The New York Times (July 23, 2016).

Wages for Chinese factory workers now average $424/month, 29% more than just 3 years ago, and labor costs are now significantly higher than in many other emerging economies. Workers in Vietnam earn less than 1/2 the salary of a Chinese worker, while those in Bangladesh get paid 1/4 as much. The costs of manufacturing in China are now almost the same as in the U.S., after taking into account wages, worker productivity, energy costs and other factors.

Without the lure of large cost savings, more American companies are “reshoring,” with 24% saying they are actively shifting production home from China or are planning to do so over the next 2 years–up from only 10% in 2012. As a result, the number of manufacturing workers here is expected to increase over the next 5 years.

But it is not just the U.S. that is taking jobs away. Almost 1/2 are moving into other developing countries in Asia, while nearly 40% are shifting to the N. America. Foxconn, which makes Apple iPhones in Chinese factories, is planning to build 12 new assembly plants in India, creating 1 million new jobs there. Many Chinese companies are burdened by excess capacity, and downsizing may be unavoidable. China estimates that 1.8 million workers could lose their jobs in the steel and coal sectors alone.

Classroom discussion questions:

1. Will the U.S. recapture all the manufacturing jobs it lost? Why?

2. What is China doing to stay competitive?

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