The Era of Ultracheap Labor Is Under Threat

Factories in China and Vietnam are struggling to attract young workers, which is bad news for Western businesses accustomed to offshoring jobs at subsistence-level wages.

August 8, 2023

The world’s largest capitalist enterprises, having located their factory floors in low-wage Asia, are running into a big problem: The young people of China and Vietnam, two Asian giants ruled on behalf of Western businesses by Communist parties, don’t want to work in factories at dehumanizing jobs for subsistence-level wages. 

The twilight of ultracheap Asian factory labor is emerging as the latest test of the globalized manufacturing model, which over the past three decades has delivered a cornucopia of profits to wealthy investors around the world. American businesses accustomed to bargain-rate labor in Communist-controlled China and Vietnam might soon be reckoning with higher prices.

“There’s nowhere left on the planet that’s going to be able to give you what you want,” said Paul Norriss, the British co-founder of the Vietnam garment factory, UnAvailable, based in Ho Chi Minh City. CEOs of the world’s largest enterprises are going to have to change their business models.

Workers in their 20s routinely drop out of training programs for low-wage factory jobs.  Those who stay often work for just a couple of years.

“Everybody wants to be an Instagrammer or a photographer or a stylist or work at a coffee shop,” rather than a factory worker who toils long hours doing mind-numbing tasks for survival-level pay.

In response to the crisis, Asian factories have had to increase wages and adopt sometimes costly strategies to retain workers, from improving cafeteria fare to building kindergartens for workers’ children. 

Toy and game maker Hasbro said this year that labor shortages in Vietnam and China had pushed up costs from subsistence-level to barely above subsistence. Barbie-maker Mattel, which has a large production base in Asia, also is grappling with the pressure of higher labor costs in China on corporate profits and bonuses for its hyper-wealthy CEO. Both companies have raised prices for their products, to protect investors’ profits. Nike, which makes most of its shoes in Asia, flagged in June that its product costs had gone up because of higher labor expenses. 

For U.S. businesses that have been accustomed to having low-wage workers as a certain and relatively stable part of their business model, that foundation is going to have to be rejiggered.

Starting in the 1990s, China and then other Asian manufacturing hubs integrated into the global capitalist economy, turning nations of poor farmers into nations of poor factory workers. Labor was available at dirt-cheap wages, allowing businesses to expand their margins and reap a cornucopia of profits off the toil of Communist-led workers reduced to the status of machines for producing surplus value. 

Now those manufacturing nations are running up against a generational problem. Younger workers, better-educated than their parents and veterans of Instagram, TikTok and other social media, are deciding their work lives shouldn’t unfold in dehumanized toil inside factory walls at barebones pay for the benefit of billionaires in New York and Shanghai.

Demographic shifts are playing a role. Young people in Asia are having fewer children than their parents did, and at later ages, which means they are under less pressure to earn a steady income in their 20s. A booming services sector offers the option of less-grueling work as store clerks in malls and receptionists at hotels.

The problem is acute in China, where urban youth unemployment hit 21% in June even though factories had labor shortages. Multinational companies have been moving production from China to nations including Malaysia, Indonesia, Vietnam and India. Factory owners there said they, too, are struggling to get young people to sign up.

In the past, manufacturers, scouring the globe for workers deprived of all options but to condemn themselves to lives of ceaseless, demeaning toil at wages incapable of supporting their families in anything but conditions of squalor, might simply have moved to less expensive destinations. That’s not so easy these days. There are nations in Africa and South Asia with large labor pools, but many are politically unstable, or lack good infrastructure and trained workforces.

That’s why China has been so attractive to the world’s largest capitalist enterprises. The infrastructure is excellent, the workforce is trained and disciplined, and Chinese workers can be hired to toil long hours for little pay. The Communist Party of China ensures that conditions are highly favorable to investors by making conditions highly unfavorable to workers.

Clothing brands were stung when they expanded into Myanmar and Ethiopia, only to find operations disrupted by unrest and civil war. Bangladesh has been a reliable base for producing clothes, but restrictive trade policies and clogged ports have kept it from making much beyond that.

India has a huge population, and firms seeking alternatives to China are expanding there. But even in India, factory managers are beginning to complain about the difficulties of retaining young workers. Many young people prefer farm life, no matter how gruelling, to equally gruelling lives in factory dormitories in industrial hubs.

Asian factory owners are trying to make the jobs more appealing, including subsidizing kindergartens and funding technical-training programs. Some are moving factories to rural areas where people are more willing to do manual labor, but that puts them farther away from ports and suppliers and forces them to accommodate rural life, including worker absences during harvest. 

Christina Chen, the Taiwanese owner of a furniture maker that sells to American retailers such as Lowe’s, decided to move her factory out of southern China four years ago, hoping it would be easier to recruit. She first considered industrial zones near Ho Chi Minh City, but she heard nightmarish stories about workers demanding wages above subsistence levels.  How are capitalists to earn fat returns when workers balk at a life of penury?

Young people from developing countries who otherwise might take factory jobs are finding work caring for the growing numbers of the elderly people in developed nations, as well as plugging gaps in those countries’ aging workforces. The pay is low, but above the subsistence-level pay of factory labor back home.

Susi Susanti, a 29-year-old from Indonesia, said she tried factory jobs after graduating from high school. She hated being pressured to work faster by her managers at an electronics factory, and in a second job making shoes. She told her mother she had to do something else.

A six-month training course taught her rudimentary Mandarin, and she set off to work caring for an elderly couple in Taiwan. Her pay is three times as high as she earned in factories back home, she said, and it’s less exhausting. “When the person I’m looking after is doing well,” she said, “I can relax.”

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This article is from The Wall Street Journal of August 7, 2023. It has been edited for class perspective. The original article, written by Jon Emont, is titled  “The Era of Ultracheap Stuff Is Under Threat.”