China's Workers in No Need of Stimulation - Wall Street Journal

By TOM ORLIK

While the U.S. struggles with a relatively jobless recovery, China seems to have the opposite challenge.

Despite a sharp slowdown in China's economy, a slew of data suggest that labor markets are tight. In the first quarter, a survey of local employment bureaus found a record dearth of workers. In the same period, government data suggest that wages for migrant workers rose 16.6% year-over-year.

Forward-looking indicators point in the same direction. A survey of 4,304 employers conducted by Manpower found that 71% expected either an increase or no change in employment in the second quarter. Just 2% expect a decrease. May's purchasing managers index showed the needle on employment tilted slightly toward more hiring too.

Agence France-Presse/Getty Images

A woman works at a cotton thread factory in Huaibei, in eastern China's Anhui province.

Chinese data on employment should be taken with a grain of salt. But the general picture contrasts sharply with the U.S. where 8.2% unemployment and weak wage growth are the depressing reality. It's also very different from the situation in China in 2009. Back then, the collapse in foreign demand for Chinese exports put around 20 million migrant workers out of a job and knocked wages for the group down 10%, according to estimates by researchers at Stanford University and the Chinese Academy of Sciences.

Structural shifts in China help explain why this year isn't seeing a repeat and demand for workers is outstripping supply. The working-age population has already peaked. And after 30 years, the flood of rural workers willing to make the trek from the farm to the factory has turned to a trickle.

The still-bright picture on jobs also holds important clues about China's overall economic condition. If China's factories were teetering on the brink, that would show up in a weakening employment picture. Instead, resilient demand for workers suggests that factories are doing OK.

Stable employment also may help explain why dismal economic data of late have not sparked a big response from Beijing. Growth in April was as bad as it has been since the financial crisis. But growth is largely a means to support social stability. If employment is holding up, lower growth is less cause for alarm.

Tight labor markets reduce the scope for stimulus too. For years, excess supply in China's labor markets helped keep wages down; the government could kick-start the economy without a pass-through to inflation.

Excess demand for labor puts an end to that luxury, though. Manufacturing-sector wages rose 20.1% in 2011, according to data from the statistics bureau. More stimulus could reignite the inflation that China's policy makers spent much of 2010 and 2011 trying to tame.

Unemployment is a lagging indicator, with job losses showing up only when the economy is already in dire straitsâ€"so there could be worse to come. But, so far, China's government has been in no hurry to unveil a massive job-creating stimulus. If one of the problems facing the economy is a shortage of workers, that makes more sense.

Write to Tom Orlik at Thomas.orlik@wsj.com